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TMI Blog1960 (9) TMI 70X X X X Extracts X X X X X X X X Extracts X X X X ..... K.C., SHAH J.C. AND RAJAGOPALA AYYANGAR N. JJ. M.C. Setalvad, Attorney-General for India, C.K. Daphtary, Solicitor-General of India and Sukumar Mistra, Senior Advocate (Sankar Ghosh and B.N. Ghosh, Advocates, with them), for the appellants (in C.A. No. 751 of 57). M.C. Mukherjee, Advocates, with him), for the appellants (in C.A. No. 10 of 58). S.M. Bose and B. Sen, Senior Advocates (P.K. Bose, Advocate, with them), for the respondents (in both the appeals). -------------------------------------------------- The Judgment of the Court was delivered by HIDAYATULLAH, J.- These two appeals on a certificate under Article 132(1) of the Constitution have been filed respectively by the Burmah Shell Oil Storage and Distributing Co., of India, Ltd., and the Standard Vacuum Oil Company (in this judgment referred to as the appellant- companies) against a common judgment of the High Court of Calcutta dated December 7, 1956. The High Court was moved for writs of mandamus, prohibition and certiorari under Article 226, but the petition was dismissed by D.N. Sinha, J. The matter arises out of assessment to sales tax on sale of motor spirit for aviation purposes (s ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... aces in the Indian territory. The case has been similarly confined in this Court also, and we are not required to express any opinion about sales of aviation spirit to aircraft flying from one place in West Bengal to another place also within that State, or even to some place in another State in the territory of India. The facts are fortunately not in dispute. Both parties admitted the procedure for the supply of aviation spirit to aircraft. Briefly described, it is as follows: Before the arrival of such an aircraft, a representative of the appellant-companies applies to the Airport Customs Officer to depute an officer to supervise the refuelling of the aircraft. After the aircraft lands, the captain or the ground engineer gives instruction about the quantity of aviation spirit required, and on permission being given by the Customs Authorities, the stated quantity is delivered in the presence of the Customs Officer deputed. Details of the delivery are entered in a delivery receipt, which is signed by the representative of the appellant-companies and the Customs Officer deputed. Duty drawback shipping bills are also drawn up to show the quantity of aviation spirit and are counte ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ld make no difference either way to the principles applicable. Though parties entered into a debate on this part of the case, we do not propose to consider it, because, in our opinion, the question must be considered in substance and not in abstractions. The liability to sales tax, if any, is attracted when aviation spirit is sold, and immunity can only be claimed, if, as stated in Article 286(1)(a) and the Explanation, the sale can be said to take place outside the State or can be regarded under Article 286(1)(b) as having taken place "in the course of........... export of the goods out of, the territory of India." Before we take up these two questions, we desire to refer to some provisions of certain Acts, which bear upon the matter. The Indian Aircraft Act, 1934 (22 of 1934) is an Act for the control of the manufacture, possession, use, operation, sale, import and export of aircraft. Section 16 of this Act provides that the Central Government may, by notification in the Official Gazette, declare that any or all of the provisions of the Sea Customs Act shall, with such modifications and adaptations as may be specified in the notification, apply to the import and export of goo ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... g one more clause to the following effect: "the tax on all retail sales of motor spirit for the purpose of aviation, which are effected on or after the date of the commencement of the Bengal Motor Spirit Sales Taxation (Second Amendment) Act, 1954, shall be charged at the rate of three annas per gallon". By the Bengal Motor Spirit Sales Taxation (Amendment) Act, 1955, the original Act was further amended. To the definition of "motor spirit" quoted by us earlier, an Explanation was retrospectively added, which reads as follows: "Explanation-For the avoidance of doubt, it is hereby declared that in this Act, the expression 'vehicle' means any means of carriage, conveyance or transport, by land, air or water". The original Act was again amended by the Bengal Motor Spirit Sales Taxation (Amendment) Act, 1957. This time, among other amendments involving rates of tax, the words "and which has a flashing point below 76 degrees Fahrenheit" were omitted from the definition of "motor spirit." The result of all these amendments was to make retail sales of aviation spirit liable to sales tax, and "retail sale" was defined, at all material times, as a sale "by a retail dealer for th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e customs barrier. He then considered the legal position in the light of Article 286 from three points of view. He first held that it was not an inter-State transaction, because both the parties were in the State of West Bengal, and aviation spirit was not delivered outside the State. Thus, he held that clause (2) of Article 286 did not apply. In this connection, he relied upon the decision of this Court in The Bengal Immunity Co., Ltd. v. State of Bihar and Others [1955] 2 S.C.R. 603; 6 S.T.C. 446.. He next considered the matter under the first sub-clause, and held that unless the fiction created by the Explanation applied, the sale must be treated as within the State under the law relating to sale of goods. In his opinion, the sale being completed within the State of West Bengal both as regards contract and delivery, the fiction could not be held applicable, because no "outside" State was involved, even though the aircraft might have to consume some aviation spirit while flying over the "outside" State. He, therefore, held that the Explanation and Article 286(1)(a) which it seeks to explain, were both not applicable. He then considered the matter from the point of view of Articl ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... le or purchase of goods where the sale or purchase takes place outside the State. An Explanation is added to this sub-clause, which has been quoted by us earlier. This Explanation has led to a long controversy in this Court during which some- what conflicting views have been expressed about its meaning. This conflict has further been accentuated when the interplay between the two clauses has been considered. The view now accepted is that the bans imposed by the two clauses are independent and separate and each must separately be got over. In view of this, we are not required to travel beyond the first clause in this case. We have heard widely divergent arguments in these appeals. The learned Attorney-General who appeared on behalf of the appellant- companies read to us copious extracts from the earlier decisions of this Court, and contended that unless the sales could be said to fall within the Explanation so as to become "Explanation sales", they must be regarded as having taken place outside the State of West Bengal and for that reason, not taxable. According to him, they could only become "Explanation sales " if aviation spirit was delivered for the purpose of consumption wi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the fulfilment of the conditions of the contract, if any, or by the operation of the law relating to the sale of goods. Starting from the basic fact that what is to be taxed under the Constitution is a sale completed by the transference of property in the goods, we have to see at what stage and where this happens. The taxable event thus cannot be found at any earlier stage when the sale is not completed by the passing of property. The critical taxable event is the passing of property in the goods as a result of a contract for their sale. The parties to the contract can agree when that event is to take place, but where it happens may be a matter of some doubt and even of difficulty. Where the parties have not agreed as to the time of the passing of property, the law relating to the sale of goods furnishes the answer. There too, there may be the same difficulty as to the place of the passing of property. The place of physical delivery of the goods does not help to solve this difficulty, because delivery may precede or follow the passing of property in the goods. Delivery of goods is, thus, not always an element which determines the completion of a sale, because the sale may be c ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... livery State gets the right to tax the sale by the fiction introduced. Now, the Explanation must be interpreted according to its own tenor, and it is meant to explain clause (1)(a) of the Article and not vice versa. It is an error to explain the Explanation with the aid of the Article, because this reverses their roles. The Explanation discards the test of passing of property, and adopts the test of delivery as a direct result of the sale for purposes of consumption. This delivery may be in the State where the passing of property also took place but then, there is no difficulty. The sale is then entirely within the State. The sale is outside the State only when the passing of property takes place in the State, but that is not the State where the goods have been actually delivered as a direct result of the sale for purposes of consumption in that State. The Constitution has, thus, for certain cases shifted and confined the situs of the taxable event to the State of the delivery of goods; but it must be remembered that this delivery may precede as well as follow the passing of property. It is, therefore, plain that no single element of the contract of sale is by itself a decisive ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... is thus determined to be inside a particular State it necessarily becomes a transaction out- side all other States. The only relevant enquiry for the purposes of Article 286(1)(a), therefore, is whether a transaction is outside the State and once it is determined by the application of the Explanation that it is outside the State it follows as a matter of course that the State with reference to which the transaction can thus be predicated to be outside it can never tax the transaction." (Italics supplied). Now, in so far as this case is concerned, the words "the Explanation determines by the legal fiction created therein the situs of the sale in the case of transactions coming within that category" in the extract last quoted, become important. The first question to consider is whether these cases can be governed by the Explanation at all. The learned Attorney-General contends that the power to tax these transactions can only be found if the sales were "Explanation sales", in the sense that the goods were delivered as a direct result of the sale for consumption in West Bengal. In our opinion, the Explanation can apply only if more than one State is involved in the same transacti ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ore than "taking out of the country". This clause of the Article has been construed on previous occasions by this Court, and what is meant by the expression "in the course of" has been well-established. Indeed, in State of Mysore v. Mysore Spinning and Manufacturing Co. Ltd. [1958] 9 S.T.C. 188; A.I.R. 1958 S.C. 1002., this Court observed that the point could no longer be said to be at large. Fortunately, there is less disagreement on this point than on the interpretation of the Explanation, and it is sufficient to refer to the leading decisions of this Court. The earliest case on the subject is State of Travancore-Cochin and Others v. The Bombay Co. Ltd. [1952] S.C.R. 1112; 3 S.T.C. 434., where four possible meanings of the expression "in the course of" were considered. It is not necessary to refer to all of them here, and it is sufficient to point out that of the view that the clause is not restricted to the point of time at which goods are exported from India and that the series of transactions which necessarily precede export of goods also come within the purview of the clause, it was said that it was too wide. It was observed by this Court that: "A sale by export thus involves ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e exemption. It may thus be taken as settled that sales or purchases for the purpose of export are not protected, unless the sales or purchases themselves occasion the export and are an integral part of it. The views expressed in these two cases were accepted and applied in State of Madras v. Gurviah Naidu, and Co., Ltd. [1955] 6 S.T.C. 717; A.I.R. 1956 S.C. 158., Kailash Nath v. State of U.P. [1957] 8 S.T.C. 358; A.I.R. 1957 S.C. 790., State of Mysore v. Mysore Spinning and Manufacturing Co. Ltd. [1958] 9 S.T.C. 188; A.I.R. 1958 S.C. 1002 and Gordhandas Lalji v. B. Banerjee and Others [1958] 9 S.T.C. 581; A.I.R. 1958 S.C. 1006. These cases do not advance the matter further, and it is, therefore, not necessary to refer to them in detail. In the earlier cases, it was not necessary to explain the meaning of the word "export", because there was always a foreign buyer to whom the goods were ultimately sent. In none of the cases the facts found here were present. Here, the buyer does not export the goods to a foreign country, but purchases them for his own use on the journey of the aircraft to foreign countries. This difference is vital, and makes the position of the appellant-com ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ial venture but a charitable one. The crucial fact is the sending of the goods to a foreign destination where they would be received as imports. The two notions of export and import, thus, go in pairs. Applying these several tests to the cases on hand, it is quite plain that aviation spirit loaded on board an aircraft for consumption, though taken out of the country, is not exported since it has no destination where it can be said to be imported, and so long as it does not satisfy this test, it cannot be said that the sale was in the course of export. Further, as has already been pointed out, the sales can hardly be said to "occasion" the export. The seller sells aviation spirit for the use of the aircraft, and the sale is not integrally connected with the taking out of aviation spirit. The sale is not even for the purpose of export, as explained above. It does not come within the course of export, which requires an even deeper relation. The sales, thus, do not come within Article 286(1)(b). These sales must, therefore, be treated as made within the State of West Bengal. The customs barrier is a barrier for customs purposes, and duty drawback may be admissible if the goods ..... 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