1964 (4) TMI 90 - SC - VAT and Sales Tax

Whether the contract and delivery to the common carrier are effected directly or through agents? Whether the sale is one for export or is one in the course of export? Held that - Appeal dismissed. The transaction of sale in the present case did not occasion the export of the goods, even though the appellants knew that the buyers in offering the bids for chests of tea and the export quotas were acting on behalf of foreign principals, and that the buyers intended to export the goods. There was between the sale and the export no such bond as would justify the inference that the sale and the export formed parts of a single transaction or that the sale and export were integrally connected. The appellants were not concerned with the actual exportation of the goods, and the sales were intended to be complete without the export, and as such it cannot be said that the said sales occasioned export. The sales were therefore for export, and not in the course of export.

Issues Involved:
1. Whether the sales of tea chests at Fort Cochin were exempt from sales tax under Article 286(1)(b) of the Constitution.
2. Whether the sales were in the course of export and therefore not taxable by the State of Kerala.
3. The interpretation and application of the Tea Act, 1953, and its impact on the sales transactions.

Issue-wise Detailed Analysis:

1. Exemption from Sales Tax under Article 286(1)(b):
The Sales Tax Officer assessed the appellants to pay sales tax on transactions of sale of tea chests, rejecting the contention that the sales were exempt from tax by virtue of Article 286(1)(b) of the Constitution. The appellants petitioned the High Court of Kerala for writs of certiorari to quash the assessment orders and for writs of prohibition to restrain the Sales Tax Officer from collecting the tax. The High Court dismissed the petitions, and the appellants appealed to the Supreme Court.

2. Sales in the Course of Export:
The Supreme Court examined whether the sale by auction to the agent or intermediary of the foreign buyer was in the course of export within the meaning of Article 286(1)(b). The Court noted that 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 the goods to a common carrier for transport out of the country. The Court emphasized that there must be an intention to export, an obligation to export, and an actual export. The Court found that the transactions in question did not occasion the export of goods, as there was no direct connection between the sale and the export. The sales were intended to be complete without the export, and therefore, the sales were for export, not in the course of export.

3. Interpretation and Application of the Tea Act, 1953:
The Tea Act, 1953, regulates the control of the tea industry, including the control of cultivation and export of tea. The Act requires a licence for the export of tea and provides for the issuance of export quotas. The Court noted that the export quota right is transferable, and the transferee may obtain export licences. The Court found that there was no statutory obligation on the purchaser to export the tea chests purchased with export rights. The export quota merely enabled the purchaser to obtain an export licence, which he may or may not obtain. The sellers had no control over the goods once sold, and there was no bond between the sale and the intended export linking them as part of the same transaction.

Separate Judgment by Ayyangar, J.:
Ayyangar, J., in a dissenting opinion, argued that the sales should be considered as sales in the course of export. He emphasized the integrality of the sales and the export, noting that the sales were made to agents of foreign buyers with the intention of exporting the goods. He argued that the absence of a specific contractual term requiring export did not negate the implicit understanding between the parties that the goods were to be exported. He also noted that the economic factors and the provisions of the Tea Act supported the view that the goods were intended for export. He concluded that the sales occasioned the export and should be exempt from sales tax.

Conclusion:
The majority judgment concluded that the sales were for export, not in the course of export, and therefore not exempt from sales tax under Article 286(1)(b). The appeals were dismissed with costs. Ayyangar, J., in his dissenting opinion, argued that the sales should be considered as sales in the course of export and exempt from sales tax.

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