1960 (9) TMI 64 - SC - VAT and Sales Tax

Whether property in the goods passed on shipment or at some point of time before shipment? Held that - Appeal dismissed. The scheme of the Legislature clearly is that where the intention as declared has not been carried out purchase tax should be levied. To hold otherwise would be to make the declaration of the intention useless. Our conclusion therefore is that the Courts below have rightly interpreted the words a person in section 10(b) of the Bombay Sales Tax Act as a registered dealer and that the purchasing dealers have rightly been assessed to purchase tax under section 10(b).

Summary

Issues Involved:
1. Whether the property in goods passed on shipment or at some point before shipment.
2. Whether the sellers were liable to pay purchase tax under section 10(b) of the Bombay Sales Tax Act.

Detailed Analysis:

Issue 1: Property in Goods and FOB Contracts
The primary question in the appeal by the Sales Tax Officer was whether the property in the goods passed to the buyers on shipment or at some point before shipment. The sellers contended that the sales were on FOB (Free on Board) contracts, meaning they retained ownership until the goods were loaded on the ship, thereby qualifying for exemption from sales tax under Article 286(1)(b) of the Constitution.

The Sales Tax Officer rejected this claim, but the appellate court disagreed, holding that the property in the goods passed on shipment, thus exempting the sales from tax. The Supreme Court noted that the normal rule in FOB contracts is that property passes on shipment unless there is a special agreement to the contrary. The Court found no evidence of such an agreement. The bill of lading was taken in the buyer's name but retained by the sellers, indicating an intention that property would not pass until payment.

The Court also considered the Export (Control) Order, 1954, which required that goods be the property of the licensee at the time of export. The Court interpreted "time of export" as when the ship leaves the port or territorial waters, not when crossing the customs frontier. Therefore, compliance with this order did not indicate an intention for property to pass before shipment.

The Supreme Court concluded that the goods remained the sellers' property until loaded on the ship, affirming the appellate court's decision that the sales were exempt from tax under Article 286(1)(b).

Issue 2: Liability for Purchase Tax under Section 10(b)
In the appeal by the sellers, the issue was whether purchase tax was leviable under section 10(b) of the Bombay Sales Tax Act. Section 10(b) imposes a purchase tax if goods are not despatched outside the State of Bombay within six months from the date of purchase by the dealer furnishing a certificate under section 8(b). The sellers argued that the term "a person" in section 10(b) should include both registered and unregistered dealers.

The Court rejected this argument, holding that the legislative intent was to ensure that goods were despatched outside the state by a registered dealer. The use of "a person" in section 10(b) was interpreted to mean "a registered dealer," consistent with the requirement in section 8(b) for a certificate declaring the intention to despatch goods outside the state by a registered dealer.

The Court concluded that the sellers had not complied with the certificate's terms since the goods were despatched by unregistered dealers. Therefore, the purchase tax assessment was upheld.

Conclusion:
Both appeals were dismissed. The Supreme Court affirmed that the property in goods under FOB contracts passed on shipment, exempting the sales from tax under Article 286(1)(b). It also upheld the purchase tax assessment under section 10(b) of the Bombay Sales Tax Act, interpreting "a person" to mean "a registered dealer." Appeals dismissed with costs.