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TMI Blog1953 (5) TMI 8X X X X Extracts X X X X X X X X Extracts X X X X ..... tter must, however, go back to the Sales Tax Officer who must make a reassessment in the light of the principles laid down in the two previous cases referred to regarding clause (1)(a), the Explanation and clause (2) and in the light of the principles discussed above regarding clause (1)(b). - Civil Appeal No. 26, 27, 30 of 1952, 31 of 1952, 32 of 1952, 33 of 1952, 34 of 1952, 35 of 1952, & 36 of 1952, - - - Dated:- 8-5-1953 - PATANJALI SASTRI M., MUKHERJEA AND DAS S.R. AND VIVIAN BOSE AND GHULAM HASAN JJ. The judgment of PATANJALI SASTRI, MUKHERJEA, BOSE and GHULAM HASAN, JJ., was delivered by PATANJALI SASTRI, C.J. DAS, J., delivered a separate judgment. Represented by: M.K. Nambiyar, Senior Advocate, (N. Palpu, Advocate, with him), instructed by Rajinder Narain, Agent, for the respondents in C. As. Nos. 26 and 33 of 1952. M.K. Nambiyar, Senior Advocate, (N. Palpu, Advocate, with him), instructed by S. Subramanian, Agent, for the respondents in Civil Appeals Nos. 27, 30-32 and 34-36 of 1952. State of U.P. : K.B. Asthana, Advocate, instructed by C.P. Lal, Agent, for the interveners. States of Bombay and Orissa : Not represented for the interveners. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... g commission agents who made the purchases and arranged for the deliveries at the respondents' depots inside the State of Travancore-Cochin, the transactions would partake of an inter-State character and fall under Article 286(2). The respondents imported goods from Africa. They purchased the goods through intermediaries called Bombay party doing business as commission agents charging commission when the goods were on the high seas and shipped from the African port to Cochin or Quilon, Goods were not landed at Bombay. The Bombay party arranged for purchases on behalf of the respondents, got delivery of the shipping documents on payment at Bombay throughout a bank which advanced money against the shipping documents and collected the same from the respondents at destination: Held, that the purchases were purchases which occasioned the import and therefore came within the exemption of Article 286(1)(b). In certain cases the Bombay party intended the goods on their own account and sold the goods as principals to the respondents and other customers; but the goods were shipped direct to Cochin or Quilon on c.i.f. terms. The shipping documents were made out in the name of the Bombay p ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... their import or export journey, and (iii) the last purchase by the exporter with a view to export and the first sale by the importer to a dealer after the arrival of the imported goods. If a sale or purchase takes place within a State, either under the general law or by reason of the Explanation, then, if it takes place in the course of import or export as explained above, no State, not even the State within which such sale or purchase takes place can tax it by reason of clause (1)(b). PATANJALI SASTRI, .J.- These are appeals from an order of the High Court of Travancore-Cochin quashing the assessments severally made on the respondents in each appeal under the Travancore-Cochin General Sales Tax Act, 1124 M.E. (Act No. 18 of 1124 M.E.) (hereinafter referred to as the Act.) The Act provided by Section 3 for the levy of a tax on the total turnover of every dealer for each year. "Turnover" is the aggregate amount for which goods are either bought or sold by a "dealer" [Section 2(j)], who is a person carrying on the business of buying and selling goods [Section 2(d)]. "Sale", with all its grammatical variations and cognate expressions, is defined as meaning, among other things, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... einafter referred to as the previous decision). Before considering how far the cashew-nut purchases made by the respondents are, on the findings returned by the High Court, entitled to the protection of Article 286(1)(b), it is necessary first to ascertain the scope of such protection. That clause, so far as it is material here, reads thus: "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) (b) in the course of the import of the goods into, or export of the goods out of, the territory of India." In the previous decision this Court referred to four different views then adumbrated in the course of the argument as to the meaning and scope of the said sub-clause as follows: "(1) The exemption is limited to sales by export and purchases by import, that is to say, those sales and purchases which occasion the export or import, as the case may be, and extends to no other transactions however directly or immediately connected, in intention or purpose, with such sales or purchases, and wheresoever the property in the goods may pass to the buyer. (2) In addition to the sal ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Sales Tax Continuance Order, 1950, (C.O. No. 7 of 1950) issued by the President on 26th January, 1950, in exercise of the powers conferred by the proviso to clause (2) of Article 286, and would, in either case, be taxable. With reference to the aforesaid decision, it may be mentioned in passing that in order to remedy what was felt to be the unsatisfactory position in regard to the levy of tax by the States in America on sales in inter-State commerce, the North Carolina Department of Revenue proposed that Congress should pass legislation authorising the States to tax certain sales in inter-State commerce. The proposed bill ran thus: "That all taxes levied by any State upon sales of property or measured by sales of property may be levied upon or measured by sales of property in inter-State commerce by the State into which the property is moved for use or consumption therein, in the same manner and to the same extent that said taxes are levied upon or measured by sales of property not in inter-State commerce. Provided: that no State shall discriminate against sales of property in inter-State commerce; nor shall any State discriminate against the sale of the products of any other ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he 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) of the 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 [see In re Pryce, Ex parte Rensburg.(1)] A sale in the course of export out of the country should similarly be understood in the context of clause (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 also as Part of or connected with such activities. The time factor alone is not determinative. The previous decision proceeded on this view and emphasised the integral relation between the two where the contract of sale itself occasioned the 'export as the ground for holding that such a sale was one taking place in the course of export. It is, however, contended that on this principle of connected or integrated activities a purchase for the purpose of export must be regarded as covered by th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the exemption was the avoidance of double taxation on the foreign trade of this country which is of great importance to the nation's economy. But the double taxation sought to be avoided consisted in the imposition of export duty by the Central Government and the imposition of sales tax by the State Government on the same transaction in its different aspects as an export and a sale. Such double taxation is already avoided by our holding that the export-sale and the import-purchase are exempt under clause (b) from the levy of sales tax by the State. The foreign trade of this country thus already enjoys immunity from double tax burden and suffers only one tax, namely, the export or import duty as the case may be. The claim now made for extension of the exemption under clause (1) (b) in the name of avoiding double taxation cannot be supported. Not the least among the reasons for rejecting the view that the last purchase for the purpose of export and the first sale after import are also within clause (1) (b) is the practical difficulty in giving effect to the exemption in regard to these transactions, having regard to the general pattern of sales tax legislation in this country of w ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ther goods and lose their distinctive character as imports. Here again, the American courts, with their practical approach to such problems, have evolved the doctrine of "original or unopened package", that is to say, the rule that the first sale of imported goods will be exempt from State taxation provided only such sale is made in the original packages in which the goods have arrived. Any sale of such goods made after the package is opened does not enjoy such exemption. Are we to import the same doctrine here to make the exemption workable. Even in America, as pointed out in Balsara's case [1951] S.C.R. 682, 699., difficulties arose from time to time in applying the doctrine as "sometimes very intricate questions arose before the courts such as whether the doctrine applied to the larger cases only or to the smaller packages contained therein or whether it applied to smaller paper packages of cigarettes taken from loose piles of packages at the factory and transported in baskets". Hence this Court has unanimously decided that "the doctrine has no place in this country" following the lead of Gwyer, C.J., in the earlier case of Boddu Paidanna [1942] F.C.R. 90; 1 S.T.C. 104. It wa ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... y the State on export-sales and import-purchases, and we find no warrant in the language employed to extend the protection to cover the last purchase before export or the first sale after import. As regards sales or purchases effected in the State by transfer of shipping (c.i.f.) documents while the goods are still in transit, we have already observed that the words "in the course of" imply a movement or progress and, therefore, a beginning and an end of such movement or progress. As clause (1) (b) is concerned only with exempting certain sales or purchases from taxation by the States in this country, it is sufficient to determine where the course of export begins and where the course of import ends. In this connection, it is useful to remember that the power to make laws with respect to duties of customs including export duties (Entry 83 of List I) and also with respect to import and export across customs frontiers and the definition of customs frontiers (Entry 41 of List I) is vested exclusively in the Central Legislature, and detailed provisions have been made in the Indian Sea Customs Act, 1878, for the levy of customs duties by the officers of the Central Government who are ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of the foregoing discussion how far the cashew-nut purchases made by the respondents are within the exemption under Article 286. It will be recalled that these purchases fell into three groups: I. Purchases made in the local market, II. Purchases from the neighbouring districts of the State of Madras, and III. Imports from Africa. As regards Group I, the High Court finds that "the purchases of raw nuts whether African or Indian are all made with the object of exporting their kernels" though there were some negligible sales in the local market of what are called "factory rejects". The High Court further finds that the bulk of the kernels were in fact exported by the respondents themselves, a small quantity being sold by the respondents to other exporters who also subsequently exported the same. Thus, on the whole, the respondents could be said to have purchased the raw nuts for the purpose of exporting the kernels and to have actually exported them. But, it will be seen, the purchases are not covered by the exemption on the construction we have placed on clause (1) (b), even if the difference between the raw materials purchased and the manufactured goods (kernels) exported ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s tax was validly levied on such purchases before the commencement of the Constitution. As the taxability of such purchases on either view of the facts was not disputed, no arguments were addressed to us on the scope of clause (2) and the Explanation to clause (1) (a), as has been stated. Group III may be sub-divided into two categories according to the findings of the High Court: (a) purchases made through intermediaries called in these proceedings as "the Bombay party" doing business as commission agents at Bombay, who acted as agents for the respondents charging commission. The dealings are thus described by the High Court: "The goods are purchased when they are in the high seas and shipped from the African port to Cochin or Quilon. Goods are never landed at Bombay. The Bombay party only arranges for purchases on behalf of the assessees, gets delivery of the shipping documents on payment at Bombay through a bank which advances money against the shipping documents and collects the same from the assessees at destination", and (b) the Bombay party indented the goods on their own account and sold the goods as principals to the respondents and other customers; but the goods wer ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... his and eight other appeals have been filed by the State of Travancore-Cochin against the judgment and order of the High Court of that State dated the 10th January, 1952, quashing the orders of assessment of sales tax made against the respondents respectively by the Sales Tax Officer and upheld on appeal by the Assistant Commissioner. These appeals were heard together immediately after the hearing of C.A. No. 204 of 1952 (The State of Bombay v. The United Motors (India) Ltd. Others [1953] 4 S.T.C. 133. Had been concluded and judgment had been reserved by another Constitution Bench. The question of construction of Article 286 of the Constitution which is involved in the present appeals was also raised in the Bombay appeal. That Constitution Bench has since delivered judgments in that appeal. The majority of that Bench have put upon clause (1) (a), the Explanation thereto and clause (2) of that Article a meaning which, in spite of my profound respect for their opinions, I am unable to accept as correct. It is again my misfortune that I am unable to agree to the interpretation my learned Brethren are now seeking to place upon clause (1) (b) of that Article. As the questions involve ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... itted to the High Court with directions to investigate into the disputed facts under certain heads set forth in the annexure to the order of remand. The High Court has now returned the records with their findings and the appeals are before us again for final disposal. The assessments in question were made under the Travancore General Sales Tax Act, 1124 (Act XVIII of 1124). That Act came into force on the 7th March, 1949, and was, after the commencement of the Constitution, continued in force subject to the other provisions of the Constitution and it, was in operation during the period of assessment. After the integration of Travancore and Cochin that Act was replaced by the United State of Travancore and Cochin General Sales Tax Act, 1125 (Act XI of 1125) but we are not concerned with the latter Act, for it came into force on the 30th May, 1950, that is to say, immediately after the expiry of the period relevant for the purposes of these appeals. The relevant provisions of Act XVIII of 1124 have been summarized in the judgment just read by my Lord the Chief justice and need not be set forth again. Suffice it to say that the rules framed under the Act prescribed that in the case ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... enting the Provinces from checking or hampering the distribution of goods or from setting up barriers against internal trade in India regarded as one economic unit. Pursuant to the legislative power thus conferred on them the Provincial Legislatures enacted Sales Tax Acts for their respective Provinces. In enacting the Sales Tax Acts, the Provincial Legislatures, however, did not confine the operation of their legislation to sales or purchases' which took place exclusively within their respective territories. Although in most of those Acts "sale" was first defined as meaning a transfer of the property in the goods, so as to make the passing of the property within the Province the principal basis for the imposition of the tax, yet by means of Explanations to that definition, they gave extended meanings to that word and thereby enlarged the scope of their operation. Thus some of those Acts purported to tax a sale or purchase irrespective of the place where it took place, if only the goods were within the Province at the time the contract for sale or purchase was made or the goods were produced or manufactured within the Province after the contract had been made. In short, if any one ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n the Seventh Schedule to the Government of India Act, 1935, there was no separate or specific entry corresponding to entry 42 in the Union List in the Seventh Schedule to the Constitution. This shows that our Constitution has deliberately assigned inter-State trade and commerce, like foreign trade, to the exclusive care of Parliament and, therefore, out of the reach of the law-making powers of the State Legislatures. Having thus distributed legislative powers between Parliament and the State Legislatures, Article 265, which is in Part XII of the Constitution and headed "Finance, Property, Contracts and Suits", provides that no tax shall be levied or collected except by authority of law. Article 286, which is also in Part XII, imposes some restrictions on the legislative competency of the State Legislatures. That article runs 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 Restrictions as to such sale or purchase takes place-imposition of tax on the sale or 'purchase of goods. (a) outside the State; or (b) in the course of the import of the goods into, or export of the goods out of, the ter ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... o the provisions of clause (2) of Article 286. Quite apart from the marginal note to Article 286, a cursory perusal of that Article will show that its avowed purpose is to put a restriction on the power of the State Legislatures to make a law imposing tax on the sale or purchase of goods under entry 54 in the State List. It may be recalled that the Provincial Legislatures purporting to act under E entry 48 in List II of the Seventh Schedule to the Government of India Act, 1935, enacted Sales Tax Acts imposing tax on sales or purchases of goods on the basis of one or more of the ingredients of sale having some connection with the Province and that this practice resulted in the imposition of multiple taxes on a single transaction of sale or purchase thereby raising the price of the commodity concerned to the serious detriment to the consumer. That evil had to be curbed and that is what has been done by clause (1) (a) of Article 286. It imposes a ban that 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 outside the State. This provision clearly indicates that in making it our Constitution pro ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s and for what purpose it is to be so deemed. Now the Act does not say that the prospectus shall be deemed fraudulent simpliciter but that it shall be deemed fraudulent on the part of the person wilfully making the omission as against a share-holder having no notice of the matter omitted ; and I am of opinion that the true intent and meaning of that provision is to give a personal remedy against the wrongdoer in favour of the shareholder". So it was held that the fiction did not operate as against the company and there could, therefore, be no rectification of the register. Again in Ex Parte Walton (1881) L.R. 17 Ch. D. 756., referring to Section 23 of the English Bankruptcy Act, 1869, James, L.J., said: " When a Statute enacts that something shall be deemed to have been done, which in fact and in truth was not done, the Court is entitled and bound to ascertain for what purposes and between what persons the statutory fiction is to be resorted to". The above observations were quoted with approval by Lord Cairns and Lord Blackburn in Arthur Hill v. The East and West India Dock Company (1884) L.R. 9 A.C. 448. Lord Blackburn went on to add at page 458: " I think the words here ' ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the property passes under the general law as well as the State in which, by force of the Explanation, the sale or purchase is deemed to take place, to tax such sale or purchase is to stultify the very purpose of that clause, for, then it will fail to prevent the imposition of multiple taxes which it is obviously designed to prevent. It is quite clear also that clause (1)(a) in terms only takes away the taxing power of all States with respect to a sale or purchase which, by reason of the fiction introduced by the Explanation, is to be deemed to take place outside their respective territories. The purpose of the Explanation is only to explain the scope of clause (1)(a). By fictionally locating a sale or purchase in a particular State it, in effect, says. that it takes place outside all other States so as to give it the benefit of the exemption of clause (1)(a). The Explanation is neither an exception nor a proviso. It is not its purpose nor does it purport, substantively and proprio vigore, to confer any power on any State, not even on the delivery State, to impose any tax. The fiction of the Explanation cannot be extended to any purpose other than the purpose of clause (1)(a), that ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... es place in the course of inter-State trade or commerce. Clause (2), therefore, places yet another ban on the taxing power of the State under entry 54 read with Article 100(3), in addition to the ban imposed by clause (1)(a). A sale or purchase contemplated by the Explanation to clause (1)(a) undoubtedly partakes of the nature of a sale or purchase made in the course of inter-State trade and, therefore, no State, whether it is the State in which the property in the goods passes under the general law or the State where the goods are delivered as mentioned in the Explanation, can impose a tax on such sale or purchase, unless and until Parliament lifts this ban. This appears to me to be the purpose and design of clause (2). It is said that if the sale or purchase referred to in the Explanation is to be hit by clause (2) then clause (1)(a) was wholly redundant, for there was no point in exempting it from the ban imposed by clause (1)(a) and hitting it by clause (2). As already stated the purpose of clause (1) (a) is to place a sale or purchase taking place outside a State beyond the taxing power of that State. The Explanation only explains, by an illustration as it were, the scop ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... because such sale or purchase becomes, in the eye of the law, a purely local transaction. I am unable to accept this argument which appears to me to overlook the declared purposes of clause (1)(a) and of the Explanation. In all inter-State sale or purchase the property passes and the sale or purchase takes place in one or the other State according to the rules laid down in the Sale of Goods Act and the inter-State character of the sale or purchase is not affected or altered by the fact of the property passing in one State rather than in another. What is an inter-State sale or purchase continues to be such, irrespective of the State where the property passes. While, therefore, to locate a sale or purchase, by a legal fiction, in a particular State, is to make it appear to be an outside sale or purchase in relation to all other States so as to attract the ban of clause (1)(a) on those States, such location cannot possibly alter the intrinsic inter-State nature or character of the sale or purchase. A sale or purchase which falls within the Explanation does not become, in the eye of the law, a purely local sale for all purposes or for all times. It is to be deemed to take place in the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 2), just as a sale or purchase which takes place within a State, either under the general law or by reason of the Explanation, cannot be taxed by the law of that State, if such sale or purchase takes place in the course of import or export within the meaning of clause (1)(b). It is next contended that the ban imposed by Article 286(2) is itself subject to the provisions of Article 304. That Article is one of the seven Articles (Articles 301 to 307) grouped under the heading "Trade, commerce and intercourse within the territory of India" in Chapter XIII. Article 301 proclaims that, subject to the provisions of Part XIII, trade, commerce and intercourse throughout the territory of India shall be free. Article 302 empowers Parliament to impose by law such restrictions on the freedom of trade, commerce and intercourse between one State and another as may be required in public interest. Indeed, entry 42 in the Union List gives exclusive power to Parliament to make laws with respect to inter-State trade and commerce and clause (2) of Article 286 also recognises this power of Parliament. Article 303 prohibits both Parliament and State Legislatures from showing preference to one State ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t of the Constitution and in fact the President, on the same day as the Constitution came into force, actually made an order in exercise of this power as hereinbefore stated. There was, therefore, no immediate danger to State revenue and the status quo was maintained. Further, clause (2) itself empowers Parliament to lift the ban imposed by it, should Parliament, in the interest of State economy, think fit to do so. The Constitution has thus itself provided ample safeguards and this Court need not assume unto itself the functions of Parliament and indirectly under the guise of interpretation seek to secure the safety of State finance which Parliament itself has adequate direct power to do. Finally, it is said that the effect of holding that the ban imposed by clause (2) extends to all sales or purchases which take place in the course of inter-State trade or commerce will be to place at a disadvantage the consumers of similar goods manufactured or produced locally, for the actual consumer will have to pay no tax if he buys similar goods manufactured in another State direct from the manufacturers or sellers in that other State. I do not think this objection has much force. Very f ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ucers in India may themselves export their goods direct to overseas buyers and the retail dealers or even actual consumers in India may occasionally import goods direct from overseas sellers. Export and import transactions of this class are, however, comparatively speaking, smaller in volume than the great bulk of foreign trade put through by the big export and import houses. The constitutional purpose is to foster this foreign trade and to preserve the Union revenue. For achieving that purpose, the Constitution has by clause (1)(b) of Article 286 imposed a ban on the State Legislatures preventing them from impinging upon the Union field of foreign trade and imposing tax on sales or purchases made in the course of import or export under the guise or pretence of making laws with respect to taxes on sale or purchase of goods under entry 54 in the State List. The question arises: what is the scope of the ban thus imposed on the States. The answer will depend on the meaning that may be ascribed to the phrase "in the course of " occurring in clause (1)(b). It should be noted that the same phrase is also used in clause (2) of that Article. In The State of Travancore-Cochin v. The Bomba ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ce there. In some cases, however, where the goods are shipped to the exporter himself or his agent without any previous sale, such sale by delivery of shipping documents may take place in India. But take the case of an Indian importer who places an order or indent with an overseas merchant for the supply of a large quantity of goods. The goods are shipped and the shipping documents are sent by air mail and presented to the Indian importer by the overseas merchant through his bank. The Indian importer receives the shipping documents against payment. The goods are, however, on the high seas on their import journey and it will take some time before the steamer will arrive. The market may fluctuate in the meantime. Is the importer to wait patiently with folded hands trusting to luck that the market may be in his favour when the goods actually arrive. Is he not to be allowed to make a gain in case there is a rise in the market rate or cut his loss if there is a downward tendency in the market price? Is he to keep his money locked up all this time. The exigencies of foreign trade require that he must be permitted to sell the goods by delivering the shipping documents and realise his mo ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rcially and constitutionally. Indeed, this view is implicit in our judgments in the case of The State of Travancore-Cochin v. The Bombay Company Ltd. [1952] S.C.R. 1112; 3 S.T.C. 434., referred to above, in which we said at p. 1120: "We are not much impressed with the contention that no sale or purchase can be said to take place 'in the course of' export or import unless the property in the goods is transferred to the buyer during their actual movement, as for instance, where the shipping documents are endorsed and delivered within the State by the seller to a local agent of the foreign buyer after the goods have been actually shipped, or where such documents are cleared on payment or on acceptance by the Indian buyer before the arrival of the goods within the State. This view, which lays undue stress on the etymology of the word 'course' and formulates a mechanical test for the application of clause (b), places, in our opinion, too narrow a construction upon that clause, in so far as it seeks to limit its operation only to sales and purchases effected during the transit of the goods, and would, if accepted, rob the exemption of much of its usefulness." The question immediately ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... export as to constitute a part of the export process itself and, therefore, as having taken place "in the course of" the export. The learned Attorney-General accepts this position but the Advocates-General of the States demur. They maintain that in this view of the matter one cannot stop at the last purchase by the exporter but has to include the purchase by the person who sells to the exporter and all previous sales or purchases until one reaches the producer. I find no substance or cogency in this line of reasoning. In the last purchase by the exporter we have at least one party who is directly concerned with or interested in the actual export. The exporter is the connecting link, the commercial vinculum, as it were, between the last purchase and the export. But in the earlier sales or purchases neither the sellers nor the purchasers are personally concerned with or interested in the actual export of the goods at all. Therefore the earlier sales or purchases may be too remote and may not be regarded as integral parts of the process of export in the same sense as the last purchase by the exporter can be so regarded. The line of demarcation is easily perceptible. Let me explain my ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tting out by an outlet at the other end so that the undercurrent of the flow, even if imperceptible on the surface, is nevertheless continuous. One cannot overlook or ignore these well-known preliminary but essential activities of the export merchants which necessarily precede and lead up to and, indeed, occasion or eventually make possible the ultimate physical movement of the goods. To hold that these purchases are independent local purchases totally distinct from the export trade will be to unduly narrow down the wide meaning of the flexible phrase "in the course of". I find support for the views I have expressed above by the recent decision of the High Court of Australia in The Queen v. Wilkinson: Ex-arte Brazell, Garlick and Coy (1952) 85 C.L.R. 467., to which reference may now be made. Section 11(3) of a New South Wales Statute called the Marketing of Primary Products Act, 1927-1940, provides, inter alia, that every producer who, except in the course of trade or commerce between the States, sells or disposes of or delivers any commodity, in respect of which a Board has been appointed, to persons other than the Board, and every person other than the Board who, except as afor ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he Magistrate from further proceeding on those convictions. In a joint judgment Dixon, McTierman, Fullager and Kitto, JJ., said: "In our opinion on the foregoing facts the disposal and the receiving made the subject of the informations were in the course of trade and commerce between the States, within the meaning of the exception in Section 11(3). Under the agreement for the sale and purchase of the potatoes the agents buying were required to consign the potatoes to a railway station in Queensland, and they did so consign them. For the purpose of the exception the delivery of the potatoes from the lorry into the railway truck can bear only the aspect of an essential and integral, even if initial, step in the transportation of the potatoes to Queensland". In a separate but concurring judgment Williams, J., said: " It was submitted to the Magistrate that the transaction must be looked at as a whole and not split up into separate contracts of sale and purchase. The Magistrate rejected this submission. In doing so he fell into error. He should have regarded the transaction as a whole. On this basis the facts proved that the acts done by the appellants were done in the course of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n the long run. It must always be borne in mind that with our exports we pay for our imports. The same considerations apply to the first sale by the importers of the imported goods. I leave out of consideration the comparatively few cases of retail dealers themselves importing goods direct from overseas sellers and the still fewer cases of actual consumers importing goods for their own consumption. In by far the largest majority of cases it is the import merchants who bring goods into the country from abroad. Their business is to bring in the goods and thereby augment the general mass of goods in the country. In some cases the importers secure orders from local dealers and pursuant to such orders the importers import the goods from foreign lands. In most cases, however, the importers, in intelligent anticipation of local demands for such goods, place orders or indents with foreign sellers who, pursuant to such orders, send out the goods. Each of these orders or indents placed with the foreign sellers by the intending importers occasions the import and these purchases by the importers are certainly "in the course of" import of the goods into India within the meaning of our previous ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... and sells the goods to the actual consumers-and such cases are comparatively few-then such retail sales may, like local retail sales of similar goods, be liable to sales tax by the State. Whether an importer is or is not a retail dealer is a question of fact which is capable of proof and, therefore, need not be regarded as creating any insuperable difficulty in the matter of the assessment of the sales tax. For reasons stated above, I find no difficulty in holding that just like the last purchases by the exporters themselves for the purpose of sending the goods out of the country the first sales by the importers to dealers of goods brought by them into the country also come within the somewhat elastic expression "in the course of" export or import. As stated above, it is possible to draw the line there. Reference is made to Clive M. Schmitthoff's Export Trade (2 nd Edition, p. 3), where the learned lecturer says: "When a merchant shipper in the United Kingdom buys, for the purpose of export, goods from a manufacturer in the same country the contract of sale is a home transaction, but when he resells these goods to a buyer abroad that contract of sale has to be classified as a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... f revenue and the economy of the States will be crippled and may even collapse. It is pointed out that there is no provision in clause (1)(b), such as there is in clause (2), under which Parliament may lift the ban and, therefore, to place these home transactions beyond the taxing power of the States will irretrievably deprive them of a very large part of revenue which they have been realising from these sales or purchases made by the big importers or exporters many of whom are foreigners. There is no reason, it is urged, why they should not be made to pay sales tax like ordinary sellers or buyers in the States. As already stated, the imposition of double taxation may eventually hamper our own foreign trade. The object of our Constitution, apparent from the distribution of legislative powers and from Article 286, is to place our inter-State trade and our foreign trade beyond the taxing power of the State. In the case of inter-State trade power is expressly given to Parliament by clause (2) of that Article to lift the ban but in the case of foreign trade no such power is given to Parliament by that Article to relax or lift the ban imposed by clause (1) (b) on the legislative power ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of urgency he buys on payment of the sales tax may claim the refund, if there be any provision in that behalf, on proof that the actually exported the goods. It is said that exporters may change their minds and sell the goods locally after obtaining the exemption or the importers may sell the goods themselves in retail to the consumers after having got the exemption. There is no substance in this line of theoretical reasoning, for these are matters capable of being proved. If the exporters or their sellers cannot prove to the satisfaction of the officer that the exporters purchased so much goods for export and did actually export the same or the importers or their purchasers cannot prove that the importers imported so much goods and distributed so much amongst the dealers as opposed to actual consumers, they will not get the benefit of the exemption and that is all. If the Sales Tax Officer finds no difficulty in ascertaining whether the goods are delivered in a State only for the purpose of consumption within that State or whether they were delivered for the purpose of resale out of that State so as to ascertain the applicability of the Explanation to clause (1) (a), why cannot t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ted to for any such extraneous or collateral purpose. It does not convert an inter-State sale or purchase into an intra-State sale for any purpose other than the limited purpose of sub-clause (a). If a sale or purchase takes place outside a State, either under the general law or by virtue of the fiction created by the Explanation, then that State cannot, under clause (1)(a), tax such sale or purchase. If a sale or purchase takes place within a State, either under the general law or by reason of the Explanation, then, if such a sale or purchase takes place "in the course of" inter-State trade and commerce, no State, not even the State where the sale or purchase takes place as aforesaid can tax it by reason of clause (2), unless and until Parliament by law provides otherwise. A sale or purchase "in the course of" import or export within the meaning of clause (1)(b) includes (i) a sale or purchase which itself occasions the import or export as already held by this Court, (ii) a sale or purchase which takes place while the goods are on the high seas on their import or export journey and (iii) the last purchase by the exporter with a view to export and the first sale by the importer to ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e is no controversy that those purchases take place within the State and are, therefore, not entitled to the protection of Article 286 (1) (a). These purchases do not take place "in the course of" inter-State trade or commerce and, therefore, are not within clause (2) of that Article. The only question is whether these local purchases can be said to take place "in the course of" export within the meaning of Article 286(1)(b). There is no dispute that the respondents do not sell the raw cashew-nuts or any portion of it within or without the State of Travancore. They do not sell the edible kernels, which they obtain as a result of the manufacturing process or any part of them within Travancore-Cochin or any other State in India except what have been described as factory rejections of negligible quantity which are not fit for export. All edible kernels are exported to foreign countries. Therefore, the respondents claim that all their purchases, whether made locally or in neighbouring States or from abroad, are "in the course of" export within the meaning of clause (1)(b) in the sense explained above. The appellant State, however, maintains that commercially "the goods" exported are e ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... to Travancore, by rail or otherwise. The delivery of the goods under the contract for purchase having already taken place outside Travancore, the subsequent despatch of those goods to Travancore cannot possibly be said to have been delivery within that State as a direct result of the purchase within the meaning of the Explanation. Indeed, the learned Advocate-General of Travancore-Cochin concedes that as purchases of this type did not fall within the Explanation they must be regarded as having taken place outside Travancore-Cochin and must, accordingly, be exempt from taxation by Travancore-Cochin under Article 286(1)(a). If it could be shown that although such sales or purchases took place entirely in those other States yet they were made between two parties residing or carrying on business in two States and for the purpose of consumption or of sale in the purchasers' State then these sales or purchases might have been said to have been made "in the course of" inter-State trade and commerce and as such exempt from taxation by both the States under Article 286 (2). The transactions of sale or purchase with which we are concerned having taken place within the period covered by the P ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ion and will be deemed to take place in Travancore so that under clause (1)(a) the neighbouring States will not be entitled to impose any tax on these sales or purchases. According to my view, and on the reasonings adopted in the Australian case, these purchases are "in the course of" inter-State trade and as such will be protected by clause (2) but according to the majority view in the Bombay appeal, which must prevail, such purchases will become, as a result of the Explanation, an intra-State purchase in Travancore and consequently out of the protection of clause (2) and liable to taxation by Travancore law. Even if according to my view these purchases fall within clause (2) they will nevertheless be liable to be taxed under the Travancore Act, in spite of that clause, by virtue of the order made by the President in exercise of the powers conferred on him by the proviso to that clause. These purchases will not get any protection under clause (1)(b) because the goods purchased were not the goods that were exported. These purchases, if any, will therefore, be liable to be taxed under the Travancore Act. The third source from which the respondents purchase raw cashew-nuts is Afric ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ds according to the mechanical test explained above. The learned Advocate-General of the appellant State does not dispute that such purchases are also to go free from sales tax. The next type of purchase of African raw cashew-nuts is as follows: The different respondents place separate orders with the same Bombay commission agents and the Bombay commission agents place one consolidated order for the entire quantity of the goods with the African sellers. The African sellers thereupon ship the entire lot of goods under one bill of lading and they send the bill of lading and invoice etc. to their Bombay Bank and the Bombay Bank presents the same to the Bombay agents. The Bombay agents pay for the entire lot of goods and obtain delivery of the shipping documents and then they prepare separate invoices for each of their constitutents, namely, the respondents, including their own commission and split up the consignment in the sense that they draw separate delivery orders covering the respective quantity of goods ordered by each respondent and send such invoice and delivery orders to the Travancore Bank, who presents the same to the respondents who receive the delivery orders against pa ..... X X X X Extracts X X X X X X X X Extracts X X X X
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