MADHUR TRADING CO. v. STATE OF KARNATAKA — 1993 DIGILAW 16 (KAR)

SHIVASHANKAR BHAT, J. ( 1 ) IN these Writ Petitions the petitioners have questioned the validity of Section 6 (ii) of the Karnataka Sales Tax Act, 1957 ('the State Act' for short ). They are also questioning the applicability of Section 6 of the said Act to the turnover in question. ( 2 ) THE substance of the case is that the petitioners purchased silk fabrics from unregistered dealers and sold them to dealers outside the state of Karnataka and the said dealers purchased these silk fabrics from the petitioners for the purpose of exporting the same into foreign countries and accordingly the said purchasers exported them. In other words, the purchasers of the silk fabrics from the petitioners purchased them for the purpose of complying with the agreement or order for export of silk fabrics. However, the transaction between the petitioners who sold silk fabrics to the purchasers outside the State of karnataka were sales in the course of inter-state trade or commerce and the silk fabrics moved from State of Karnataka to outside the state of Karnataka, occasioned by the sales effected by these petitioners to the outside purchasers. The petitioners contend that the purchase tax under Section 6 of the State Act was not attracted for two reasons : (1) They purchased the silk fabrics from handloom or power loom weavers, whose establishments did not fall within the definition of a factory under the Factories Act, 1948, who had manufactured those silk fabrics in Karnataka. Such transactions of purchases fall outside the definition of "sales" for all purposes of the state Act in view of Section 5 (3) (c) read with its proviso, as it stood during the relevant period. If there was no sale there cannot a purchase. (2) Section 6 is attracted in respect of the purchases made by a dealer of any taxable goods in circumstances in which no tax under Section 5 is leviable on the sale price of such goods and those goods are despatched to a place outside the State except as a direct result of sale or purchase in the course of inter-state trade or commerce. Therefore, if the purchased goods are dispatched to a place outside the State in the course of inter-State trade or commerce section 6 is not attracted. Therefore, if the purchased goods are dispatched to a place outside the State in the course of inter-State trade or commerce section 6 is not attracted. In these cases, according to the petitioners, the silk fabrics were despatched as a direct result of sales in the course of inter-state trade or commerce. ( 3 ) THE second question also arises in a few more Writ Petitions wherein the petitioners had purchased goods like handicrafts in the state of Karnataka. Those sales under which they purchased handicrafts were not exigible to sales tax under Section 5. Subsequently these petitioners sold the goods to dealers outside the state of Karnataka and the said sales occasioned the movement of goods from the State of Karnataka to other states like State of maharashtra or Tamilnadu. These are also inter-state sales according to the petitioners and if so, Section 6 of the State Act is not attracted by virtue of clause (ii) thereof. The State however contends that in all these cases the purchasers were outside the State of Karnataka and purchased these goods to comply with the export orders and therefore the respective sales by the petitioners were penultimate sales falling within Section 5 (3) of the Central Sales Tax Act, 1956 ('the Central Act' for short) and this is practically admitted by the petitioners by producing 'h' forms prescribed under the Rules framed under the Central Act. Therefore the goods moved from State of karnataka in the course of export and not in the course of inter-state trade or commerce. ( 4 ) THE first question pertaining to the silk fabrics does not pose much difficulty. To appreciate the said contention it is necessary to read the proviso to Section 5 (3) (c ). ( 5 ) SECTION 5 of the State Act levies tax, on sale or purchase of goods. As per sub-section (1), a general rate of tax is levied on the taxable turnover. However, the subsequent sub-sections provide separate rates of taxes in respect of several good specified in different schedules to the Act. Similarly, stage of levy of tax also varies. The general levy under Section 5 (1) is taken away by the other sub-sections as provided therein. The relevant part of sub-section (3) of Section 5 reads thus:" (3) Notwithstanding anything contained in sub-section (1), the tax under this Act shall be levied - (a ). . . Similarly, stage of levy of tax also varies. The general levy under Section 5 (1) is taken away by the other sub-sections as provided therein. The relevant part of sub-section (3) of Section 5 reads thus:" (3) Notwithstanding anything contained in sub-section (1), the tax under this Act shall be levied - (a ). . . . . . . . . . . . . . . . . . . . . . . . (b ). . . . . . (c) in respect of silk fabrics, at the rate of four per cent, at the point of last sale in the State by the dealer liable to tax under the Act on his taxable turnover of sales relating to such goods in each year: provided that the sale by a handloom or a powe'rloom weaver (other than one whose establishment falls within the definition of a "factory" under the Factories Act, 1948 (Central act 63 of 1948) of silk fabrics manufactured by him in Karnataka shall not be deemed to be a sale for purposes of this Act. "we are concerned with the effect of the above Proviso. The Proviso clearly states that sale by a handloom or a powerloom weaver of silk fabrics manufactured by him shall not be deemed to be a sale for the purposes of this Act. In other words, when these petitioners purchased silk fabrics from handloom or powerloom weavers, which were manufactured by those weavers in Karnataka, "there was no sale" at all for the purposes of State Act. The proviso is not confined in its application to sub-section (c) of Section 5 (3 ). The proviso pervades the entire Act. For all purposes of the State Act, the transfer of silk fabrics by the weavers, under the circumstances stated therein is not a sale at all. In such a situation can it be said that the petitioners "purchased" the silk fabrics from the weavers. ( 6 ) THE learned Government Advocate contended that the 'deeming' under this proviso is to be confined to the transfer effected by the weavers by treating it as not a sale, the recipient or the transferee can still be considered as the purchaser. According to the learned Government Advocate the weavers are not sellers under the state Act as there were no "sales"; however, in reality there were sales. According to the learned Government Advocate the weavers are not sellers under the state Act as there were no "sales"; however, in reality there were sales. The deeming shall have to be confined only, to exempt the weavers from the liability to pay the Sales Tax. ( 7 ) THERE is no definition of the "purchase" under the Act. A purchase is nothing but the other side of the sale transaction. The primary side is sale and the resultant transaction is the purchase. The. term "sale" is defined under Section 2 (1) (t) of the State Act. Primarily every transfer of the property in goods results in a sale. The transfer, of property is by one person to another. No doubt in the ordinary parlance and under the general law the transfer of property in silk fabrics by the weavers in favour of the petitioners were sales but the state Act declares such transactions as not sales at all. In such a situation, for the purpose of the Act the vesting of title in the petitioners in respect of those silk fabrics is not by virtue of the sale as defined under the Act, for the purpose of levy of tax. If there was no transfer of the property for the purpose of the Act in favour of the petitioners these petitioners cannot be held as the purchasers of those silk fabrics. The legislative intention seems to be not to burden silk fabrics with the taxes under the Act to the extent those silk fabrics were manufactured by weavers as stated in the proviso above. If the object was to grant exemption only to the weavers, these silk fabrics manufactured by the weavers could have been shifted to Third schedule read with Section 5 (3) (b) of the State Act or a statutory exemption from liability to pay the sales tax could have been granted by saying so by a suitable wording of the proviso. The proviso could have said that sale by a handloom or a powerloom weaver, etc. , of silk fabrics manufactured by him shall not be taxable under clause (c) of Section 5 (3 ). The proviso has clearly declared that such a sale is not a 'sale' at all for the purposes of the State Act. The proviso could have said that sale by a handloom or a powerloom weaver, etc. , of silk fabrics manufactured by him shall not be taxable under clause (c) of Section 5 (3 ). The proviso has clearly declared that such a sale is not a 'sale' at all for the purposes of the State Act. It will be straining the language of the proviso and the legal effect to be given to the deeming provision to say that there can be a purchase without a sale. If there was no sale, the consideration paid by the purchaser cannot be a sale price. If so, the main part of Section 6 itself will not be attracted. In these circumstances, we are constrained to hold that this is not a case where the petitioners "purchased" any taxable good in circumstances in which no tax under Section 5 was leviable on the "sale price" of such goods, referred in Section 6 of the State Act. ( 8 ) MR. SANTHOSH Hegde, learned Senior Counsel, appearing for some of the petitioners relied on the principle governing the interpretation of a legal fiction. The learned Counsel referred to the observations of Lord Asquith in EAST END DWELLING CO. LTD. vs finsbury BOROUGH COUNCIL. ". . . IF you are bidden to treat an imaginary state of affairs as real, you must surely, unless prohibited from doing so, also imagine as real the consequence and incidents which, if the putative state of affairs had in fact existed, must inevitably have flowed from or accompanies it. The statute says that you must imagine a certain state of affairs; it does not say that having done so, you must cause or permit your imagination to boggle when it comes to the inevitable corollaries of that state of affairs. " ( 9 ) THERE can be no doubt that Proviso to Section 5 (3) (c) creates a legal fiction. A real sale in the eye of law, is deemed to be not a sale for purposes of the Act under the said proviso, We are bidden to treat a real sale as not a sale at all. In such a situation we have to imagine as real, the consequence and incidents which follow from imagining the real sale as not a sale. A purchase is the real consequence and incident of a sale. In such a situation we have to imagine as real, the consequence and incidents which follow from imagining the real sale as not a sale. A purchase is the real consequence and incident of a sale. Therefore, if there is no sale no argument is required to say that there cannot be a purchase. The above principle enunciated by Lord Asquith has been followed by the Supreme Court in several Decisions and it is unnecessary to repeat the same. ( 10 ) WE have to bear in mind that we are interpreting a fiscal legislation and primary importance has to be given to the language used, Question of any equity does not arise and it is not permissible to read probable intention of the Legislature, into the enacted provisions. ( 11 ) THE next question is not free from difficulty. To appreciate the second contention it is necessary to read a few more provisions including the main parts of Section 6. The relevant part of Section 6 reads thus:"6. Levy of purchase tax under certain circumstances.- subject to the provisions of sub-section (5) of Section 5, every dealer who in the course of his business purchases any taxable goods in circumstances in which no tax under Section 5 is leviable on the sale price of such goods, and (i) either consumes such goods in the manufacture of other goods for sale or otherwise or consumes otherwise, or disposes of such goods in any manner other than by way of sale in the State, or (ii) despatches them to a place outside the State except as a direct result of sale or purchase in the course of inter-State trade or commerce, shall be liable to pay tax on the purchase price of such goods at the same rate at which it would have been leviable on the sale price of such goods under Section 5:"under the Central Act the two relevant provisions to be referred are the following :"3. When is a sale or purchase of goods said to take place in the course of inter-State trade or commerce.- A sale or purchase of goods shall be deemed to take place in the course of inter-State trade or commerce if the sale or purchase - (a) occasions the movement of goods from one State to another; or (b) is effected by a transfer of documents of title to the goods during their movement from one State to another. ""5. When is a sale or purchase of goods said to take place in the course of import of export.- (1 ). . . omitted here. (2 ). . . omitted here. (3) Notwithstanding anything contained in sub-section (1), the last sale or purchase of any goods preceding the sale or purchase occasioning the export of those goods out of the territory of India shall also be deemed to be in the course of such export, if such last sale or purchase took place after, and was for the purpose of complying with, the agreement or order for or in relation to such export. " ( 12 ) FOR the purpose of these petitions we assume that the petitioners despatched the goods under sales to outside purchasers who purchased these goods to export the same for the purpose of complying with the agreement or order for or in relation to such exports. In other words, sales effected by the petitioners to the outside purchasers would fall within Section 5 (3) of the Central Act. According to the learned Government Advocate these sales are therefore sales in the course of export and not sales in the course of inter-state trade or commerce. ( 13 ) SECTION 6 of the State Act is attracted under the following circumstances : (1) In the course of his business a dealer purchasers any taxable goods; (2) The purchase was under circumstances in which no tax under Section 5 was leviable on the sale price; (3) The purchaser thereof either consumes the purchased goods in the manufacture of other goods in any manner other than by way of sale in the State or the dealer who purchased the goods earlier, despatches the said goods to a place outside the State. However, if such a despatch is as a direct result of sale or purchase in the course of inter-state trade or commerce there is no levy of purchase tax under Section 6. It is unnecessary to refer to other circumstances except the last circumstance stated above. Here, admittedly, the petitioners purchased the goods. The goods were taxable goods. However, at the time of purchase the sale transaction was not taxed under Section 5 because the sale transaction was not taxable. Thereafter, the petitioners despatched goods outside the State. The question is whether this despatch is as a direct sale in the course of inter-state trade or commerce referred in Section 6 (ii) of the State Act or whether it should be considered as a despatch as a direct result of sale otherwise than in the course of inter-state trade or commerce. The Revenue heavily relies on Section 5 (3) of the Central Act to point out that this is a sale in the course of export and therefore it cannot be a sale in the course of inter-state trade or commerce. ( 14 ) THE petitioners rely on Section 3 (a) of the Central Act and contend that the transaction between the petitioners and the purchasers from them were inter-state sales because the sales by the petitioners occasioned the movement of goods from one State to another and those sales by themselves do not cause the movement of goods to foreign countries. The further movement across the Indian frontier depends upon the volition of the purchasers. Section 5 (3) of the Central Act does not take away the effect of Section 3 (a ). This is also clear from the fact that the petitioners had to prove by producing h-Forms that their purchasers had in fact exported the goods outside india to avoid the levy of Central Sales Tax. The petitioners pointed out that under Section 6 (1) of the Central Act every dealer shall be liable to pay tax under the said Act on all sales of goods effected by him in the course of inter-state trade or commerce. The petitioners pointed out that under Section 6 (1) of the Central Act every dealer shall be liable to pay tax under the said Act on all sales of goods effected by him in the course of inter-state trade or commerce. However, the proviso thereto reads thus:"provided that a dealer shall not be liable to pay tax under this Act on any sale of goods which, in accordance with the provisions of sub-section (3) of Section 5, is a sale in the course of export of those goods out of the territory of India. "the learned Counsel for the petitioners contended that this proviso makes it abundantly clear that but for Section 5 (3) of the Central Act, the sales effected by these petitioners to the outside purchasers would be taxed under the Central Act as sales in the course of inter-state trade or commerce. The learned Government Advocate on the other pointed out that the purpose of Section 6 of the State Act is to see that atleast one tax is levied by the State in respect of a taxable commodity and that purpose will be defeated by the interpretation now pressed for by the petitioners. It was further contended that the subjects of "sale in the course of inter-state trade or commerce" and "sale in the course of export" are two distinct and independent concepts. If the subject falls within one concept it cannot fall within the other and full effect shall have to be given to the provisions of Section 5 (3) of the Central Act which enunciates one of the principles as to when a sale is said to takes place in the course of export. Section 5 (3) of the Central Act has to be read along with Section 5 (1) and these two provisions exhaustively deal with the concept of the sale in the course of export. ( 15 ) ARTICLE 269 (1) (g) empowers the Government of India to levy taxes on the sale or purchase of goods where such sale or purchase takes place in the course of inter-state trade or commerce (newspapers are excluded from this provision ). ( 15 ) ARTICLE 269 (1) (g) empowers the Government of India to levy taxes on the sale or purchase of goods where such sale or purchase takes place in the course of inter-state trade or commerce (newspapers are excluded from this provision ). Article 286 bars the state from imposing or authorising the imposition of tax on the sale or purchase of the goods where such sale or purchase takes place, - (a) outside the State or (b) in the course of import of the goods into or export of the goods out of the territory of India. As per Article 286 (2), parliament may by law formulate principles for determining, when a sale or purchase of goods takes place in any of the ways mentioned in clause (i ). By virtue of this provision the Central Act was enacted. ( 16 ) IN CONSOLIDATED COFFEE LTD. vs COFFEE BOARD, BANGALORE2, the Supreme Court rejected the contention that section 5 (3) of the Central Act created a legal fiction. It was held that the word "deemed" also means "regarded as being", and it is equivalent to "shall be taken to be". At page 174 the Supreme Court held: ". . . In St. Aubyn vs Attorney - General, Lord Radcliffe observed thus: "the word 'deemed' is used a great deal in modern legislation. Sometimes it is used to impose for the purposes of a statute an artificial construction of a word or phrase that would not otherwise prevail. Sometimes it is used to put beyond doubt a particular construction that might otherwise be uncertain. Sometimes it is used to give a comprehensive description that includes what is obvious, what is uncertain and what is, in the ordinary sense, impossible. " after making these observations the learned Law Lord went on to hold that it was in the last of the three days (indicated in the observations) that the deeming provision was made in Section 58 (2) of the Finance Act, 1940, which came for interpretation before the House of Lords. Similarly in Words and Phrases, permanent Edition, Vol. 11 A, at page 181, it is explained that the word "deemed" is also used to mean "regarded as being"; it is equivalent to "shall be taken to be" (at page 185 ). Similarly in Words and Phrases, permanent Edition, Vol. 11 A, at page 181, it is explained that the word "deemed" is also used to mean "regarded as being"; it is equivalent to "shall be taken to be" (at page 185 ). In our view, when sub-section (3) of Section 5 uses the word "deemed" and says that the penultimate sale "shall also be deemed to be in the course of export" what is intended to be conveyed is that the penultimate sale shall also be regarded as being in the course of such export. In other words, no legal fiction is created. Moreover, it was conceded by the Counsel that the word "deemed" in sections 3, 4 and 5 (1) laid down general principles and did not create any fiction; if that be so, it is difficult to accept the contention that in sub-section (3) the same word should be construed as creating a fiction. Thirdly, a principle has been explained in Butterworths' Words and Phrases, Second Edition, vol. 4, at page 177, thus: "a 'principle' means a general guiding rule, and does not include specific directions, which vary according to the subject matter" (per Shearman, J. , In M'creagh vs Frearson ). Similarly in Words and Phrases, Permanent Edition, Vol. 33a, at page 327, it is explained that "principie means a general law or rule adopted or professed as a guide to action. " In other words, as opposed to any specific direction governing any particular or specific instance, transaction or situation a principle would be a guiding rule applicable generally to cases or class of cases. Looked at from this angle it will be clear that sub-section (3) of Section 5 formulates a principle inasmuch as it lays down a general guiding rule applicable to all penultimate sales that satisfy the two conditions specified therein and not any specific direction governing any particular or specific transaction of a penultimate sale. In other words, the content of the provision shows that it lays down a principle. " the Supreme Court also negatived the contention that Section 5 (3) was beyond the power or authority of Article 286 (2) of the constitutipn. Thus, Section 5 (3) of the Central Act was traced to article 286 (2 ). ( 17 ) THE State Act and the Central Act are to be read together. " the Supreme Court also negatived the contention that Section 5 (3) was beyond the power or authority of Article 286 (2) of the constitutipn. Thus, Section 5 (3) of the Central Act was traced to article 286 (2 ). ( 17 ) THE State Act and the Central Act are to be read together. Though the competence to enact the two legislations are different and vested, one with the State Legislature, and the other in the parliament. ( 18 ) SECTION 6 was substituted in the present form by Karnataka Act 9 of 1970 with effect from 1. 4. 1970. However, Section 5 (3) of the central Act was inserted by Central Act 103 of 1976 with effect from 1. 4. 1976. Section 5 (3) of the Central Act was enacted to reduce the tax burden on the goods exported from the Country and for this purpose the Parliament thought it necessary not to impose Central sales Tax even on the penultimate sales preceding the real export sale. After the Decision of the Supreme Court in MOHD. SERAJUDIN vs STATE OF ORISSA3, Section 5 (3) was introduced. 'the object and reasons for including this provision is quoted by the Supreme Court in murli MANOHAR AND CO. AND ANOTHER vs STATE OF haryana AND ANOTHER4. ( 19 ) TILL 31st March 1976, when Section 5 (3) of the Central Act was not in force, undisputedly the sales of the petitioners to the outside purchasers were inter-state sales falling within Section 3 (a) of the Central Act. Consequently the turnover in respect of these sales were subjected to the Central Tax. By virtue of Section 5 (3) read with proviso to Section 6 of the Central Act these sales came outside the purview of levy under the Central Act. Similarly, till 31 st March 1976, because these sales were sales in the course of inter-state trade or commerce they came within the purview of excepted clause in section 6 (ii) of the State Act and thus purchase tax was not attracted to this kind of sales, (assuming that the transactions under which the petitioners acquired the goods from the weavers are to be considered as purchases ). No doubt the concept of inter-state trade or commerce is a concept to be understood by reference to the principles formulated by the Parliament by virtue of the constitution of provisions. No doubt the concept of inter-state trade or commerce is a concept to be understood by reference to the principles formulated by the Parliament by virtue of the constitution of provisions. With the change of the principles formulated by the parliament the concept may expand and the meaning to be now given to the relevant words shall have to be the meaning attributable by virtue of expanded meaning resulting from the new or additional principles formulated by the Parliament. ( 20 ) THE petitioners mainly relied on Rule 12 (10) (a) of the Rules made under the Central Act read with Form-H, to contend that if a certificate in Form-H is not produced after the sales in question to the outside purchaser, the levy under the Central Act is automatically attracted. Therefore this is a case of a sale which occasioned the movement of goods from one State to another. ( 21 ) HAVING considered the respective contentions in depth we are unable to accept the contention of the petitioners on this question. ( 22 ) ARTICLE 286 (2) of the Constitution, empowers the Parliament to formulate principles determing when a sale or purchase of goods 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. ( 23 ) AS per Article 269 (1 ) (g) taxes on the sale or purchase of goods (other than Newspapers), where such sale or purchase takes place in the course of interstate trade or commerce, shall be levied and collected by the Government of India,' but shall be assigned to the states, in the manner provided in the said Article. Article 269 (3) provides that Parliament may be law formulate principles determining when a sale or purchase of goods takes place in the course of nterstate trade or commerce. Thus, Article 269 and 286 are the sources of Parliament's power in enacting Sections 3 to 5 of the central Act. Though Sections 3 and 5 use the word 'deemed' while formulating the principles, Supreme Court has held that the word was not used to create a legal fiction; but, used to convey as to what are the principles governing the respective concepts stated in those provisions. Though Sections 3 and 5 use the word 'deemed' while formulating the principles, Supreme Court has held that the word was not used to create a legal fiction; but, used to convey as to what are the principles governing the respective concepts stated in those provisions. Therefore, there can be no doubt that these concepts are concepts derived from the Constitution and the principles formulated under Sections 3 and 5 of the Central Act would govern them. When the State Legislature uses any one of these concepts - whether, it is "sale in the course of inter-state trade or commerce," or "sale in the course of export", it has to be understood by applying the principles formulated in the aforesaid Sections 3 and 5 of the Central Act. ( 24 ) BEFORE the enactment of Section 5 (3) of the Central Act, the concept of "sale in the course of export" was confined to the last sale which directly occasioned the export. The meaning of the term 'course' was explained by the Supreme Court in Mohd. Serajuddin's case. At page 153 the Supreme Court held: "the expression "in the course" implies not only a period of time during which the movement is in progress but postulates a connected relation. Sale in the course of export out of the territory of India means 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 Supreme Court referred to its earlier Decision in Coffee Board case to point out that "sale in the course of export" comprised of three essentials:". . . First, there must be a sale. Second, goods must actually be exported. Third, the sale must be a part and parcel of the export. The propositions laid down in the Coffee Board case are these : The sale which is to be regarded as exempt is a sale which causes the export to take place or is the immediate cause of the export. To establish export a person exporting and a person importing are necessary elements and the course of export is between them. The propositions laid down in the Coffee Board case are these : The sale which is to be regarded as exempt is a sale which causes the export to take place or is the immediate cause of the export. To establish export a person exporting and a person importing are necessary elements and the course of export is between them. Introduction of a third party dealing independently with the seller on the one hand and with the importer on the other breaks the link between the two, for then there are two sales, one to the intermediary and the other to the importer. The first sale is not in the course of export because the export commences with the intermediary. The tests are that there must be a single sale which itself causes the export or is in the progress or process of export. There is no room for two or more sales in the course of export. The only sale which can be said to cause the export is the sale which itself results in the movement of the goods from the exporter to the importer. "a sale "for export" was different from a "sale in the course of export". Consequently it was held that, sale involved in the purchase of goods by a dealer who in turn sold them to the actual exporter, was not a 'sale in the course of export' (such a sale is referred as 'penultimate sale' for the sake of easy identification ). ( 25 ) THE earlier Decision of the Supreme Court also are quite apposite here. In THE STATE OF TRAVANCORE - COCHIN AND others vs THE BOMBAY COMPANY LTD. , ALLEPPEY AND others, the Supreme Court observed at page 438:". . . A sale by export thus 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 effectuated, and the sale and resultant export form parts of a single transaction. Of these two integrated activities, which together constitute an export sale, whichever first occurs can well be regarded as taking place in the course of the other. Such a sale cannot be dissociated from the export without which it cannot be effectuated, and the sale and resultant export form parts of a single transaction. Of these two integrated activities, which together constitute an export sale, whichever first occurs can well be regarded as taking place in the course of the other. " ( 26 ) IN STATE OF TRAVANCORE - COCHIN AND OTHERS vs V. SHANMUGHA VILAS CASHEWNUT FACTORY, QUILON the term 'course' was explained thus at page 336: ". . . The word "course" etymologically 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), 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. A sale in the course of export out of the country should similarly be understood in the context of Cl. (1) (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 exportation of the goods out of the country but also as part of or connected with such activities. The. time factor alone is not determinative. " as the penultimate sale was held not part of this 'course', the claim of non-taxability of such a sale was negatived in Mohd. Serajuddin's case. This resulted in the levy of sales tax on the penultimate sale, which in effect resulted in adding burden on the goods exported. To remove this hardship especially in the background of goods being channellised for export through State trading Corporation (which will be the real, direct exporter), Section 5 (3) was inserted by the Central Act 103 of 1976 with effect from 1. 4. 1976. ( 27 ) SINCE Section 5 (3) is part of the principles formulated by the Parliament to determine the "sale in the course of export", it is inevitable to infer that, such a penultimate sale is now considered as part of the 'course of export', and is one of the activity integrated with other activities leading to export. 4. 1976. ( 27 ) SINCE Section 5 (3) is part of the principles formulated by the Parliament to determine the "sale in the course of export", it is inevitable to infer that, such a penultimate sale is now considered as part of the 'course of export', and is one of the activity integrated with other activities leading to export. The Parliament has linked this penultimate sale with the export sale and it has become an integral part of the "course of export. " The earlier Decisions to the extent they held that such a penultimate sale is not part of the integrated activities of export and that it is not in the 'course of export' is now no longer operative. The penultimate sale falling within Section 5 (3) of the central Act stands merged with the export sale and constitutes an essential ingredient of the 'course of export sale'. ( 28 ) IF such a 'penultimate sale' is treated as a "sale in the course of inter-state trade or commerce", because, such a penultimate sale also incidentally satisfies the requirements of Section 3 (a) of the central Act, the real identity of the said penultimate sale, in law, would be missed. May be, the two courses - one referred in Section 3 and the other in Section 5 of the Central Act - may overlap factually; but such overlapping should not blur the identity of the real 'course'. The 'course' commences with the penultimate sale and continues till goods are actually exported (sometimes, it may continue further ). The entire course from the commencement till the end is reached, is one and indivisible; to identify a part of the course separately and distinctly under Section 3 (a) of the Central Act, would break the link established by Section 5 (3) and the continuity required in the concept of 'course of export'. ( 29 ) WE are of the view that, by Section 5 (3) of the Central Act, an unbreakable merger of the penultimate sale with the course of export, has taken place and it will be constitutionally impermissible to separate the penultimate sale for certain purposes. ( 29 ) WE are of the view that, by Section 5 (3) of the Central Act, an unbreakable merger of the penultimate sale with the course of export, has taken place and it will be constitutionally impermissible to separate the penultimate sale for certain purposes. Petitioners rely on the proviso to Section 6 (1) of the Central Act, to contend that such a penultimate sale, if falls under Section 3 (a) of the said Act, is considered as an inter-state sale by the Act itself; therefore, the proviso, provides for granting exemption from the levy under Section 6 (1 ). Petitioners, referred to Rule 12 (10) (a) and the certificate under form-H to substantiate their contention, that, but for those certificates, levy under Section 6 would be attracted on such a sale, as an inter-state sale. ( 30 ) COURT has to read the statutory provisions harmoniously with the Constitutional requirements. If the penultimate sale, which falls within the terms of Section 5 (3), also falls within the language of section 3 (a), a levy of tax on it as an inter-state sale would be unauthorised and illegal. The Central Act does not provide for the levy of a tax on the "sale in the course of export". Therefore, it is necessary to provide for exclusion of such a sale from the net of taxation under the said Act. Proviso to Section 6 (1) is a necessary incident to the insertion of Section 5 (3) in the Act. If a dealer claims the benefit of Section 5 (3), in respect of a sale which also bears the character of an inter-state sale under Section 3 (a), it has to be proved that in reality, said sale is a sale in the course of export. Purpose of the proviso to Section 6 (1), as well as the provisions of Rule 12 (10) (a) and the certificate in Form-H is to enable the dealer to establish that the sale in question was a sale in the course of export. Petitioners rely on the certificates obtained by them from the exporter, which are in form-H. The prescribed form and the certificates reflect the language of Section 5 (3), in other words, the certificates in Form-H is the mode of proving that the penultimate sale preceded the export and it was part of the course of export. Petitioners rely on the certificates obtained by them from the exporter, which are in form-H. The prescribed form and the certificates reflect the language of Section 5 (3), in other words, the certificates in Form-H is the mode of proving that the penultimate sale preceded the export and it was part of the course of export. ( 31 ) SECTION 5 (3) does not create a legal fiction, by deeming an inter-state sale as a sale in the course of export. Section 5 (3) is part of the principles formulated by the Parliament under Article 286 (2), as pointed by the Supreme Court in Consolidated Coffee Works case (46 STC 164 ). This again, shows that, the Court cannot treat such an export sale, as an inter-state sale, otherwise, Court would be creating a legal fiction by treating, which is in legal reality a sale in the course of export, as an inter-state sale. ( 32 ) IT was contended that to construe Section 6 of the State Act, provisions of Section 5 (3) of the Central Act are irrelevant and Section 6 of the State Act has to be understood with reference to the language used therein; the learned Counsel for the petitioners relied on a Decision of this Court in B. M. ASHRAF and CO. vs STATE OF karnataka in support of this proposition; according to the learned counsel ratio of the said Decision is in support of their present contention wherein, this Court held that the penultimate sale was not a sa. e in the course of export. ( 33 ) WE don't think, the above is, the correct understanding of the said Decision. In Ashrafs case, the petitioner purchased taxable goods in the State of Karnataka, under circumstances, in which no sales tax was leviable on the seller; thereafter the petitioner sold the goods within the State to one Kalbhavi. Kalbhavi exported the goods to places outside India for the purpose of complying with the agreement in that regard. Purchase by Kalbhavi from the petitioner was for the purpose of complying with the agreement or order in relation to those exports by Kalbhavi; therefore, sale by the petitioner was a penultimate sale falling within the concept of "sale in the course of export", stated in Section 5 (3) of the Central Act. Purchase by Kalbhavi from the petitioner was for the purpose of complying with the agreement or order in relation to those exports by Kalbhavi; therefore, sale by the petitioner was a penultimate sale falling within the concept of "sale in the course of export", stated in Section 5 (3) of the Central Act. Question was whether, the earlier purchase made by the petitioner attracted the levy of purchase tax under Section 6 (ii) of the State Act. Petitioner contended that, petitioner's sale to Kalbhavi was a local sale and section 6 (ii) was not attracted; this connection was accepted and in this regard, the Bench relied on certain observations of the Supreme court in Murali Manohar's case. The Bench of which one of us was a member, held at page 401 :"from the above, it is clear that, for the purposes of purchase tax under Section 6 of the Act, the fiction created by Section 5 (3) of the CST Act has no relevancy so long as the said purchase tax is not levied on the actual sale transaction covered by Section 5 (3) of the CST Act. " ( 34 ) THE wording of the above observation is not unqualified. It states that protection against the levy of the tax under Section 5 (3) is not extended to the levy of tax under Section 6 of the State Act. Next three paragraphs in the above Decision are quite crucial to the ultimate Decision; they read:"11. If these penultimate sales are local sales, then, the factual position is that, the assessee before us purchased the goods and sold them locally to Kalbhavi, who in turn despatched the goods in the course of export. The sale effected by the assessee to Kalbhavi gets the protection of Section 5 (3) of the CST Act, as penultimate sale prior to the actual export sale but that does not mean, the assessee despatched the purchased good to a place outside the State. 12. The principle stated in Section 5 (3) is to regard the sales effected by the assessee as a sale in the course of export; but this principle does not convert the action of the assessee as an act of despatching the goods to a place outside the State. 13. Section 6 uses the word "despatch" deliberately. Full effect should be given to its meaning. 13. Section 6 uses the word "despatch" deliberately. Full effect should be given to its meaning. The question is, whether the assessee despatches the goods to a place outside the State, when he sells them locally to an exporter (Kalbhavi ). No exercise is required to say that. factually, the assessee delivers the goods to Kalbhavi within the State and therefore that is not an act of despatching the goods to a place outside the State. The word "despatches" is also spelled as "dispatch"; the meaning is "to send off or away with promptness. "in other words, the petitioner in the said case had not despatched the goods sold by it in the course of inter-state trade or commerce. No doubt, sale made by the petitioner to Kalbhavi was not an inter-state sale by virtue of Section 5 (3) of CST Act; but goods were not despatched to a place outside the State as a result of said sale; therefore the said sale retained the character of a local sale for the purposes of Section 6 of the State Act, having regard to the language used in Section 6. The above reasoning if continued to the facts of the present case, it has to be held that in the case before us, the goods were despatched to a place outside the State "in the course of export", unless said course of export is bifurcated into two: (i) in the course of inter-state trade till the goods were received by the purchaser in the other State (non-Karnataka) and (ii) actual export by the said purchaser from the said non-Karnataka State. Conclusion reached in b. M. Ashraf Co. vs State of Karnataka makes the position quite clear. At page 404, it was held:"section 5 (3) of the CST Act does not affect the identification of the situs of the sale; the purpose of Section 5 (3) is to enumerate a principle that the penultimate sale prior to the actual export of goods, also is a sale in the course of export. Section 6 of the Act, has to be understood in the light of its language read with the definition of sale under the Act. Section 6 of the Act, has to be understood in the light of its language read with the definition of sale under the Act. Since the penultimate sale, i. e. , the sale by which the assessee transferred the goods to Kalbhavi is a local sale, it cannot be equated to despatching the goods to a place outside the State by the assessee; hence the levy under Section 6 is not attracted. " ( 35 ) IN Murli Manohar Co. 's case Section 9 (1) of the Punjab Act, clearly excluded Section 5 (3) of the Central Act from the concept of "sale in the course of export", during the relevant time; therefore, the supreme Court held that the "penultimate sale" was not a sale in the course of export outside the territory of India, falling within the 3rd category of ways dealt by Section 9 (1) therein (and referred at page 92 of 80 STC 79 ). The observations of Supreme Court at page 93 are also relevant in this regard, which were quoted in Ashraf and Co. 's case7; Supreme Court held that the High Court was right in accepting the argument of the Revenue that Section 9 (c) excepted only sales made in the course of Section 5 (1) of the CST Act but not those under section 5 (3) of the said Act. Punjab Act had made a distinction between a sale in the course of export within the meaning of Section 5 and a sale within the meaning of Section 5 (3) [page 94 of Murli manohar and Co. 's case]. levy and collect it since there is no reason for waiving the purchase tax in these two situations. Now coming to inter-State sale and export sale, it may be noticed that in the case of inter-State sale, the State of Haryana does get the tax-revenue may not be to the full extent. Though the Central Sales Tax is levied and collected by the Government of India, Article 269 of the Constitution provides for making over the tax collected to the state in accordance with certain principles. Where, of course, the sale is an export sale within the meaning of Section 5 (1) of the central Sales Tax Act (export sale) the State may not get any revenue but larger national interest is served thereby. Where, of course, the sale is an export sale within the meaning of Section 5 (1) of the central Sales Tax Act (export sale) the State may not get any revenue but larger national interest is served thereby. It is for these reasons that tax on the purchase of raw material is waived in these two situations. Thus, there is a very sound and consistent policy underlying the provision. The object is to tax the purchase of goods by a manufacturer whose existence as such goods is put an end to by him by using them in the manufacture of different goods in certain circumstances. " the learned Counsel for the petitioners pointed out that the above reasoning supports their contention, because, by treating these penultimate sales as inter-State sales, levy under Section 6 of the state Act will not be attracted and because of Section 5 (3) and proviso to Section 6 (1) of the Central Act, there will not be any levy under the Central Act; from such a combined operation of the two concepts, the export trade stands to gain. ( 36 ) WE consider this a matter of Governmental policy, rather than a principle of statutory construction. If the State Legislature intended not to burden exportable goods with any tax-element under the State act, Section 6 (ii) would have included the 'export sales' along with the 'inter-state sales' in Section 6 (ii ). In fact, a comparison with Section 9 of the Punjab Act referred in Murali Manohar and Co. 's case, shows that, Punjab Legislature had excluded export sales falling within section 5 (1) along with the inter-state sales. ( 37 ) THE Supreme Court has laid emphasis on the language of the charging Section 9 (of the Punjab Act) and held that, if a transaction is covered by the language of the Section, said transaction cannot be excluded from the clutches of the said provision. ( 38 ) STATE Legislature's Intention in excluding only inter-state sales from the purview of Section 6 (ii) is quote obvious. Under Section 6 (ii), purchase tax is leviable on the earlier purchase, if the purchased goods are despatched to a place outside the State except as a direct result of inter-state sale, (for the sake of convenience sale in the course of inter-state trade or commerce is referred as 'inter-state sales' ). Under Section 6 (ii), purchase tax is leviable on the earlier purchase, if the purchased goods are despatched to a place outside the State except as a direct result of inter-state sale, (for the sake of convenience sale in the course of inter-state trade or commerce is referred as 'inter-state sales' ). ( 39 ) IF such despatch of goods to a place outside the State is in the "course of export", charge under Section 6 is attracted. The State Legislature has not thought it necessary to except from the charge under Section 6, in case the goods are despatched in the course of export. The exception in favour of the goods despatched in the course of inter-state sale is because, the said inter- state sale is taxed under the Central Act, and the said revenue is collected by the State; the 'goods' which did not bear the burden of sales-tax earlier, could bear this tax burden under the Central Act. The idea is that the State should have the benefit of one tax atleast, from a transaction in such goods, involving sale or purchase. In HOTEL BALAJI's case this aspect has been considered; at page 225, it was observed: ". . . The State legislature does not wish to - in the interest of trade and general public - tax both the raw material and the finished (manufactured) product. This is a well-known policy in the field of taxation. But where the manufactured goods are not sold within the State but are yet disposed of or where the manufactured goods are sent outside the State (otherwise than by way of inter-state sale or export sale) the tax has to be paid on the purchase value of the raw material. The reason is simple: if the manufactured goods are disposed of otherwise than by sale within the State or are sent out of State (i. e. consigned to dealers own depots or agents), the State does not get any revenue because no sale of manufactured goods has taken place within Haryana. In such a situation, the State says, it would retain the ( 40 ) LEARNED Counsel pressed for the literal construction of Section 6 (ii) of the State Act and according to them, the words "in the course of inter-state trade or commerce" should be understood in their normal, literal sense. In such a situation, the State says, it would retain the ( 40 ) LEARNED Counsel pressed for the literal construction of Section 6 (ii) of the State Act and according to them, the words "in the course of inter-state trade or commerce" should be understood in their normal, literal sense. The learned Counsel referred to a Decision reported in POLESTAR ELECTRONIC (PVT.) LTD. vs ADDITIONAL commissioner, SALES TAX, AND ANOTHER, wherein, the supreme Court observed that a statutory enactment must ordinarily be construed according to the plain natural meaning of its language and no words should be added, altered or modified unless it is plainly necessary to do so in order to prevent a provision from being unintelligible, absurd, unreasonable, unworkable or totally irreconcilable with the rest of the statute. ( 41 ) THE proposition, certainly is unexceptionable. But, here, we are concerned with the meaning attributable to the words conveying a certain concept evolved by the Constitution; we cannot ignore the principles formulated by the Parliament by virtue of the said constitutional provisions; the meaning is to be the meaning attributed by the Constitution. ( 42 ) THOUGH the main part of Section 6 was enacted and modified in the year 1970 and Section 5 (3) of the Central Act was inserted in the year 1976 State Legislature has not thought it fit to alter the phraseology of Section 6 (ii) of the State Act. The State Legislature had occasion to deal with the provisions of Section 6 while amending or omitting a few clauses of the proviso to the said Section. Thus, state Legislature had occasion to deal with Section 6 of the State Act while substituting clause (i) of the proviso, in the year 1976 by Act 78 of 1976 which came into force on 7th December 1976; clause (iii) of the proviso was dealt with by Karnataka Act 27 of 1985 and clause (iv) was inserted and again omitted subsequent to the coming into force of Section 5 (3) of the Central Act. Karnataka Act 14 of 1987 is another Act touching the proviso to Section 6. These enactments indicate that the State legislature did not consider it necessary to amend the language of Section 6 (ii) of the State Act to include the sale referred in Section 5 (3) of the Central Act along with inter-state sales in Section 6 (ii ). Karnataka Act 14 of 1987 is another Act touching the proviso to Section 6. These enactments indicate that the State legislature did not consider it necessary to amend the language of Section 6 (ii) of the State Act to include the sale referred in Section 5 (3) of the Central Act along with inter-state sales in Section 6 (ii ). ( 43 ) THE phrase, "sale in the course of inter-state trade or commerce" was enacted in the State Act, prior to the introduction of section 5 (3) of the Central Act. However, it is reasonable to infer that this purchase was to be understood in the sense in which the. Constitution expected it to be understood. It was used in the State Act not by specific reference to the Central Act, as the latter Act then stood. The phrase was used, obviously, with reference to the general law concerning the subject of "sale in the course of inter-state trade or commerce". That subject is dealt by the Central Act, by virtue of the relevant Constitutional provisions. Therefore, the meaning of the phrase would expand or shrink, depending upon the meaning attributed to the phrase in the Central Act. The principle of interpretation, in such a situation, is the one stated by the Supreme court, in BAJYA vs SMT. GOPIKABAI AND ANOTHER, the supreme Court held at page 797: "broadly speaking, legislation by referential incorporation falls in two categories: First, where a statute by specific reference incorporates the provisions of another statute as of the time of adoption. Second, where a statute incorporates by general reference the law concerning a particular subject, as a genus. In the case of the former, the subsequent amendments made in the referred statute cannot automatically be read into the adopting statute. In the case of latter category, it may be presumed that the legislative intent was to include all the subsequent amendments also, made from time to time in the generic law on the subject adopted by general reference. This principle of construcetion of a reference statute has been neatly summed up by sutherland, thus: "a statute which refers to the law of a subject generally adopts the law on the subject as of the time the law is invoked. This will include all the amendments and modifications of the law subsequent to the time the reference statute was enacted. This will include all the amendments and modifications of the law subsequent to the time the reference statute was enacted. " corpus Juris Secundum also enunciates the same principle in these terms: ". . . Where the reference in an adopting statute is to the law generally which governs the particular subject, and not to any specific statute or part thereof. . . . . . . . . . the reference will be held to include the law as it stands at the time it is sought to be applied, with all the changes made from time to time, at least as far as the changes are consistent with the purpose of the adopting statute. " consequently, it is not possible to read the words "in the course of inter-state trade or commerce" in Section 6{ii) of the State Act, ignoring the provision of Section 5 (3) of the Central Act. ( 44 ) IN the result, the petitioners are entitled to succeed on the first question; however, they fail in their contention as to the interpretation of Section 6 (ii) of the State Act. ( 45 ) THE first question raised by the petitioners involve investigation of certain facts to attract the provisions of Section 5 (3 ). (c) and proviso thereto of the State Act. We direct the Assessing authorities to investigate the relevant facts and make can appropriate order in the light of the observations contained in this Order. In all these cases, show cause notices have been issued to the petitioners and the matter is still pending at that stage; the petitioners are permitted to tile objections to the show cause notices within eight weeks from today. The concerned authority shall examine the facts whether the cases of the petitioners come under Proviso to Section 5 (3) (c) of the Act and if so, the proceedings to levy tax under Section 6 of the State Act shall be dropped. Writ petitions are disposed of accordingly without any order as to costs. --- *** --- .