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TMI Blog1975 (11) TMI 111X X X X Extracts X X X X X X X X Extracts X X X X ..... Act is absolutely correct and we fully endorse the same. X X X X Extracts X X X X X X X X Extracts X X X X ..... ct, sales made through the foreign company cannot be taken to be sales made by the petitioner-company and the sales will be treated as sales made in the course of inter-State trade and commerce. In the return (para 14) this part of the order of the Assistant Commissioner is supported on the reasoning that "the sales to the foreign buyers by the foreign company as the agent of the petitioner on commission basis cannot be equated with the sales by the petitioner, there being no contract or agreement between the petitioner and foreign buyers". The reasoning of the Assistant Commissioner and the stand taken up in the return both proceed upon a complete mis-conception. It is not disputed that the foreign company in entering into agreements with the foreign buyer merely acted as the agent of the petitioner-company on commission basis; therefore, parties to the sales were the petitioner-company as seller and B.I.S.C. (Ore) Ltd., London, as buyer. It was plainly not a case of two sales, one between the petitioner-company and the foreign company and the other between the foreign company and the foreign buyer. The transactions comprised of only sales between the petitioner-company and the fo ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... (N.B.: M.O.I.L. refers to petitioner-company and C.P.M.O. refers to foreign company). In pursuance of this arrangement, Schedule 1 to the Export (Control) Order, 1962, was amended by inserting manganese ore in the schedule and export instructions were issued by the Chief Controller of Imports and Exports for canalisation of exports of manganese ore through the petitioner-company and M.M.T.C. Thus, during the period relevant for our purposes manganese ore could be exported only by the petitioner-company and M.M.T.C. 7.. It will be convenient now to deal with the salient features of the agreements, annexures N, O and P. The sellers and buyers named in all these agreements are respectively the petitioner-company and M.M.T.C. By annexure N the petitioner-company as sellers agreed to sell Indian manganese ore of given specifications free on board Bombay or Vizag, at buyers' option. The price fixed was Rs. 3.45 per dry long ton f.o.b. Trimming charges, export duty and sales tax, if any, were to be to the account of the buyers. The sellers were liable for the penalty payable by the buyers to the foreign buyers in Indian rupees at the same rate of exchange at which they were paid by ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the port of shipment; and (5) certificate of origin. The final settlement of payment was to be made within 14 days from the date of submission of documents based on the dry weight analysis and moisture content determined at the port of discharge. The conditions in annexure O are almost similar to annexure N. The price mentioned in annexure O is inclusive of export duty, which was to be on sellers' account. It was provided that the execution of the agreement was dependent on the grant of necessary export permit. As regards annexure P, it is also similar to annexures N and O. Export duty in this agreement is to be on account of the sellers. The price mentioned in this agreement is in terms of United States currency and agreed rate of conversion into Indian currency is also mentioned. 8.. Another important fact which requires to be mentioned is that M.M.T.C., who were the buyers under the aforesaid agreements, sold the goods to the foreign buyers. So in each case there were two sales before the goods were exported, one by the petitioner-company to M.M.T.C., the exporter, and the second by M.M.T.C. to the foreign buyer. 9.. The Regional Assistant Commissioner came to the conclusi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Indian seller and exporter in which property passes within the territory of India and the other between the exporter and a foreign buyer, the first sale cannot be regarded as a sale in the course of export because it is not directly and integrally connected with the export. In the words of their Lordships: "It may be regarded as therefore settled law that where there are two sales leading to export-the first under which goods are procured for sale and the property in the goods passes within the territory of India, and the second by the buyer to a foreign party resulting in export-the first cannot be regarded as a sale in the course of export, for a sale in the course of export must be directly and integrally connected with the export." In Coffee Board's case [1970] 25 S.T.C. 528 (S.C.); [1970] 3 S.C.R. 147., same principles were reiterated. It was held that for a sale to fall within the description of sale in the course of export, either the sale must take place when the goods are already in the process of being exported which is established by their having crossed the customs frontier or the sale must occasion the export; to occasion the export the sale must be one which causes ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t of the goods. No other sale can qualify for the exemption under section 5(1) read with article 286(1)(b)." 11.. Examined in the light of these principles it is clear that the sales by the petitioner to M.M.T.C. under the agreements, annexures N, O and P, cannot be held to be sales which occasioned the export of the goods. These agreements are typical f.o.b. contracts in which property in the goods passes on shipment: National Tractors, Hubli v. Commissioner of Commercial Taxes[1971] 27 S.T.C. 271 at 282 (S.C.); A.I.R. 1971 S.C. 2277 at 2279. The true nature of an f.o.b. contract was stated by Hamilton, L.J., in Wimble Sons & Co. v. Rosenberg & Sons [1913] 3 K.B. 743., as follows: "It is well-settled that, on an ordinary f.o.b. contract, when 'free on board' does not merely condition the constituent elements in the price but expresses the seller's obligations additional to the bare bargain of purchase and sale, the seller does not 'in pursuance of the contract of sale' or as seller send forward or start the goods to the buyer at all except in the sense that he puts the goods safely on board, pays the charge of doing so, and, for the buyer's protection but not under a mandate to ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... onstitution (Sixth Amendment) Act, 1956. It was contended by the sellers that as "they continued to be the owners of the goods till the goods had crossed the customs barrier and thus entered the export stream", the sales were not liable to tax in view of the provisions of article 286(1)(b). This contention was accepted because the law, as it was understood before the Constitution (Sixth Amendment) Act, was that the course of export out of the territory of India commenced after the goods crossed the customs barrier and that sales by transfer of shipping documents after the goods crossed the customs barrier were within the exemption being sales in the course of export: see State of Travancore-Cochin v. Shanmugha Vilas Cashew-nut Factory [1953] 4 S.T.C. 205 at 216-217 (S.C.); [1954] S.C.R. 53 at 68-69. The course of import was then similarly understood to start at a point when the goods crossed the customs barrier of the foreign country and to end at a point in the importing country after the goods crossed the customs barrier: J.V. Gokal and Co. (P.) Ltd. v. Assistant Collector of Sales Tax [1960] 11 S.T.C. 186 (S.C.); [1960] 2 S.C.R. 852. In an f.o.b. contract property passes on ship ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... London, was to inspect the goods at the works of the manufacturers. Another inspection by the Deputy Director of Inspections, Ministry of W.H. and S., Madras, was provided for in the contract. The goods were consigned by the Belgium manufacturers to the appellant by ship under bills of lading in which the appellant was the consignee. The goods were cleared by the appellant's clearing agents at Madras and despatched for delivery to the buyer. On these facts it was held that the sales of the axle-box bodies by the appellant to the Director-General of Supplies and Disposals were in the course of import, for it was incidental to the contract that the axle-box bodies be manufactured in Belgium, inspected there and imported into India for the buyer. "Movement of goods from Belgium to India was in pursuance of the conditions of the contract between the assessee and the Director-General of Supplies. There was no possibility of these goods being diverted by the assessee for any other purpose." The facts in the second case were that the firm of Kotak & Co. was engaged in the supply of foreign cotton to textile mills in India on the basis of import licences issued to the mills authorising imp ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Bihar v. Tata Engineering and Locomotive Co. Ltd. [1971] 27 S.T.C. 127 (S.C.); [1971] 2 S.C.R. 849. In that case the question was whether certain sales were in the course of inter-State trade and commerce as contemplated by article 286(2) as it stood before the Constitution (Sixth Amendment) Act. Although certain general principles were stated as arising from the decided cases, the case is not very helpful for deciding the controversy raised in the instant case. 15.. Out of the High Court cases which were referred to us on the point, three cases which are on somewhat similar facts support the conclusion reached by us. These cases are Erattamuthu v. Joint Commercial Tax Officer [1971] 28 S.T.C. 649 (Mad.)., Hindustan Cashew Products (P.) Ltd. v. Sales Tax Officer [1971] 28 S.T.C. 730 (Ker.)., and State of Orissa v. Md. Serajuddin 1973 Tax. L.R. 2099 (Orissa) [On appeal to Supreme Court affirmed; see [1975] 36 S.T.C. 139 (S.C.)]. A case which was relied upon on behalf of the petitioner is Commissioner of Commercial Taxes v. Thakur Prasad Sao [1972] 29 S.T.C. 551 (Pat.). In this case a dealer of Ranchi in Bihar sold iron-ore to the State Trading Corporation of India on f.a.s. basis, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ds, closed- in bays and gulfs, and waters on the shoreward side of the straight baselines from which the territorial sea may be measured, as mentioned below. Over such waters, the coastal State has sovereignty as complete as over its own territory, and may deny access to foreign vessels, except when in distress, or except when the passage of foreign vessels must be permitted under article 5, paragraph 2, of the Convention. (2) The territorial sea, or maritime belt, being a belt of coastal waters to a width of at least three miles, measured from the low-water mark, or from selected straight baselines drawn at a distance from the coast. Subject to the right of innocent passage of foreign vessels, and subject to the duty of the coastal State to warn passing vessels against known dangers of navigation, that State has sovereignty over the territorial sea. (3) The contiguous zone, being a belt contiguous to the territorial sea, but not extending beyond twelve miles from the low-water mark or other selected straight baselines, the littoral State does not have sovereignty over this zone, but may exercise control therein for the purpose of enforcing compliance in its territory and territ ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 0.. Next come the sales under the agreements, annexures S, T and U. As regards annexure S, it has been accepted before us by the learned counsel for the petitioner that under this contract, during the relevant period, only 1,000 metric tons of ore was sold to an Indian buyer, Ram Bahadur Thakur and Company and delivery was taken ex-plot by the buyer. This sale was, therefore, not even an f.o.b. sale and cannot be regarded as a sale in the course of export. As regards annexures T and U, these agreements are on f.o.b. terms similar to the agreements, annexures N, O and P, discussed earlier in favour of Indian buyers, namely, R.S.G.K. Agrawal and Sons and Natwarlal Shamaldas. The difference mainly in this that the buyers under the agreements T and U were not themselves the exporters and they were obliged, because of canalisation of exports, to sell the ore purchased by them to M.M.T.C. Thus in these cases there were at least three sales before the goods moved out of the territory of India: (1) Sale by the petitioner-company to Indian buyers; (2) sale by the Indian buyers to M.M.T.C., the Indian exporter; and (3) sale by M.M.T.C. to the foreign importer. For the reasons already ind ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... for the sale of oriental mixture or any other mixture is a contract for sale of future goods, that the goods sold come into existence at the place of destination after the wagons coming from different mines are unloaded at one place, and that the goods sold are neither appropriated to the contract in Madhya Pradesh nor do they move from Madhya Pradesh to another State for the reason that the goods sold are never in existence in Madhya Pradesh and they come into existence for the first time at the place of destination. 22.. The agreements, which are relevant on this point, are annexures R-1 to R-7. All these agreements are similar in nature and it will be sufficient to notice the terms and conditions of annexure R-1. By this agreement the petitioner-company agreed to sell to the Universal Ferro and Allied Chemical Ltd., Tumsar (Maharashtra), specified quantity of oriental mixture of manganese ore. The conditions as to quality, price, delivery and payment in this agreement are as follows: "Quality: The average quality of the ore to be supplied by sellers should be, without guarantee, 49.25 per cent manganese, 0.15 per cent phosphorus, 9 per cent silica and 7.5 per cent iron provid ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... . Final payment of the remaining 5 per cent of the value of the material against the following documents: 1.. Sellers final invoice, in triplicate. 2.. A statement of analysis showing the average analysis of the ore." It will be seen from the terms and conditions of the agreements of sale that samples taken from deliveries from each mine were to form the basis of settlement, the price was f.o.r. mine sidings with scale pro rata depending on manganese content of the ore, deliveries were taken by the buyers who were consignees at the mines sidings and the risk passed to the buyers after the loading of the goods into the wagons at the mines sidings. May be that the buyers, as argued by the learned counsel for the petitioner, could still reject the goods at the destination if the ores arriving from different mines were not in such a proportion as to result into a mixture of the contracted grade. But the component ores were appropriated to the contract at the mines sidings by the sellers with the consent of the buyers when they were loaded in the wagons. The ore from the mines of Madhya Pradesh moved to the place of destination in another State as a result of a term or covenant in t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... btained by unloading component ores of grades B and C at the place of destination, the contract is really for sale of component ores of grades B and C in such a proportion as to produce the specified quantity of mixture of grade A. The buyers in effect purchase the component ores subject possibly to the right of rejection in case the component ores are not sent in a proportion as to result in a mixture of contracted grade. This being the position, we reject the argument that the component ores were not the goods sold and that the mixture of ores is a new commercial commodity different from its components. Learned counsel for the petitioner relied upon an unreported judgment of the Bombay High Court in the case of Central Provinces Manganese Ore Company Ltd. v. State of Maharashtra Sales Tax References Nos. 17 to 19 of 1964 decided on the 22nd July, 1969 (Bombay High Court)., where it has been held in another context that mixture is different from its components. For the reasons already indicated, we are unable to agree with this view. 24.. In the case of despatches of ores to the ports of Bombay and Vizag to comply with the orders of buyers who wanted the goods for export, the pet ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ontract of sale. Property in the goods may have passed at the destination, but passing of property is not the test under section 3(1). As the movement of the goods was under a covenant or an incident of the contract of sale, all these sales fell within section 3(1) and were sales in the course of inter-State trade or commerce. Further, as the movement of the goods, in so far as the ore from the mines in Madhya Pradesh is concerned, commenced from this State, the tax can be levied and collected in this State under section 9 of the Act. 26.. These sales were also not outside sales with reference to the State of Madhya Pradesh. Sales of ore being sales of unascertained goods, the relevant provision applicable in this respect is section 4(2)(b) of the Central Sales Tax Act. Sale under this provision is deemed to take place inside a State where the goods are "at the time of their appropriation to the contract of sale by the seller or by the buyer, whether assent of the other party is prior or subsequent to such appropriation". It is to be noticed that section 4(2)(b) unlike section 23(1) of the Sale of Goods Act does not talk of unconditional appropriation with the assent of the other ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... al and Brothers [1967] 19 S.T.C. 377., and Premier Refractories of India, Katni v. Sales Tax Officer 1973 Vikraya Kar Nirnaya 290. 29.. Learned counsel then challenged the imposition of purchase tax on a turnover of Rs. 748 under section 7(1) of the State Act on the ground that proviso to that section grants an exemption up to Rs. 5,000. The argument cannot be accepted. The turnover of Rs. 748 represents purchases from unregistered dealers, but to claim exemption under the proviso, the petitioner should have proved that "the aggregate of purchase prices of all the goods purchased" did not exceed Rs. 5,000. The aggregate of purchase prices of all the goods purchased would obviously include purchases made from both registered and unregistered dealers. The petitioner does not claim that all its purchases did not exceed Rs. 5,000. Therefore, it can- not be held that the petitioner was entitled to exemption under the proviso to section 7(1). 30.. The petitioner's learned counsel then contended that the Assistant Commissioner was wrong in holding that the turnover of inter-State sales to the extent of Rs. 1,37,54,720 was not supported by C forms. This argument raises a question of fac ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ereafter referred to as the "C.P.M.O.C." was a private company incorporated in the United Kingdom and carried on the business of extracting manganese ore from several mines in the erstwhile States of C.P. and Berar and Bombay. By virtue of the agreement referred to above a new company was formed under which the Government of India, the Government of Maharashtra and the Government of Madhya Pradesh held shares in the ratio of 17 per cent each whereas the original company, C.P.M.O.C., retained shares to the extent of 49 per cent. Thus the position was that in the present commercial venture the Central Government had preponderance of shares. The appellant, after the formation of the new company, was known as Manganese Ore (India) Ltd., which will hereafter be referred to as the M.O.I.L. Fresh leases to extract the minerals from the various mines were issued by the Government in favour of the M.O.I.L. and the company entered into contracts with buyers in India and outside for selling the manganese ore extracted from the various mines situated in the States of Madhya Pradesh and Maharashtra. A close analysis of the contracts entered into by the appellant- company and the business carri ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... stant Sales Tax Commissioner accepted the plea of the appellant and did not levy any tax on those sales. These sales, therefore, did not form the subject-matter of the present appeal before us. This position was conceded by both sides. Category-II represents contracts which were entered into by the appellant-company with the Minerals and Metals Trading Corporation of India Ltd.-hereinafter referred to as M.M.T.C.-under which the appellant despatched manganese ore of varying percentage to the M.M.T.C., f.o.b. Bombay. After having received the goods from the appellant the M.M.T.C. exported the goods to foreign buyers. The copies of the contracts comprising these sales are annexures N, O and P, before the High Court. Category-III relates to sales as per agreements, copies of which are annexures S, T and U, by which the appellant sold to M/s. Ram Bahadur Thakur & Company, Bombay, and other buyers which in turn sold the goods to the M.M.T.C. As regards these two categories, category-11 and category-III, the appellant advanced twofold contention before us. In the first place it was argued that as the goods were eventually exported by the buyers from India to foreign countries, therefo ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ould not be said to be sales which occasioned any export. The High Court, therefore, rightly found that these sales were completed within the territory of India when the goods passed to the buyers. The High Court further found as follows: "For these reasons, it cannot be held that these sales occasioned the export within section 5(1) of the Central Sales Tax Act and were sales in the course of export." The High Court relied on a number of authorities, but in view of the decision of this court in Md. Serajuddin's case [1975] 36 S.T.C. 136 (S.C,); (1975) 2 S.C.C. 47,, it is not necessary for us to consider those authorities at all, because the matter has now been concluded by a decision of this court. In fact this position was conceded by Mr. Natu, appearing for the appellant, but he tried to persuade us to refer the case to a larger Bench for reconsidering Md. Serajuddin's case [1975] 36 S.T.C. 136 (S.C,); (1975) 2 S.C.C. 47,. We are, however, unable to agree with the prayer made by the learned counsel for the appellant because this court has given its decision recently and the doctrine of stare decisis is a very valuable principle of precedent which cannot be departed from unless ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tions are satisfied then by virtue of section 9 of the Central Sales Tax Act it is the State from which the goods move which will be competent to levy the tax under the provisions of the Central Sales Tax Act." On a careful consideration of the facts and circumstances of the present case we are satisfied that the present case is directly covered by the decision of this court in Balabhagas Hulaschand's case [1976] 37 S.T.C. 207., The learned counsel for the appellant sought to distinguish Balabhagas Hulaschand's case [1976] 37 S.T.C. 207., on the ground that what was despatched from Madhya Pradesh was merely manganese ore of a particular percentage but that was not the property which was sought to be purchased by the buyers in other States. It was contended that under the contracts of sale the property which was to be sold was continental mixture which consisted of various kinds of rocks or manganese ore which were mixed together. What therefore was actually despatched, according to counsel for the appellant, was merely one of the constituents of the goods purported to be sold and not the goods which were ores purchased by the buyers. The High Court in its well- reasoned judgment ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s to be supplied was only manganese ore of the percentage of 49.25 per cent. Properties like phosphorus, silica and iron are inherent constituents of manganese ore and are bound to be found in every manganese ore. Similary in another contract which appears at page 117 of the paper book and which was entered into by the appellant with the M.M.T.C., the relevant passage runs thus: "The execution of this sale agreement is dependent on the sellers being able to rail the ores from the mines to the port for shipment and also of the grant of any necessary export permit. (1) Quality: 30,000 (Thirty thousand tonnes) of 1,000 kgs. each, 5 per cent more or less at buyers' option. (2) Specifications: Mn. Basis 45% rejection below 46% Fe. 10% maximum Silica+Alumina 14% maximum Phos. 0.18% maximum. " Here also it would appear that the agreement is only for sale of manganese ore. Although a certain percentage is mentioned but that percentage is derived automatically when the manganese ores are stocked together. In most of the other contracts which have been filed by the appellant, for instance, in another contract which has been entered into between the appellant and the M.M.T.C. on Febr ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... was to supply the ore in instalments. In these circumstances, therefore, the theory of the ore supplied by the appellant being only one constituent and not the entire goods sold appears to be purely illusory and is not at all supported even by the contracts of sale filed by the appellant. For instance, if a firm placed an order for 1,000 bales of cloth to be supplied to it by the seller in the course of five months and in pursuance of this contract if the seller supplies 200 bales every month it cannot be said that the first instalment of 200 bales is not the goods sold but only a constituent of the same. On a parity of reasoning, therefore, the manganese ores loaded by the appellant in the railway wagons in the State of Madhya Pradesh are clearly included in the contract of sale which itself provides that the supply has to be made within a specified period of few months. Learned counsel for the appellant placed great reliance on a judgment of the Bombay High Court, a certified copy of which has been filed in this court in Central Provinces Manganese Ore Company Ltd. v. State of Maharashtra Sales Tax References Nos. 17, 18, 19 and 20 of 1964 decided on April 7, 1969 (Bombay High ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... en levied only on such sales of the manganese ore despatched from the State of Madhya Pradesh which came from the mines situated in the State of Madhya Pradesh. Thus all the incidents of an inter-State sale are present in the instant case and the view taken by the High Court that the sales were covered by section 3(a) of the Central Sales Tax Act is absolutely correct and we fully endorse the same. These were the main arguments advanced before us by counsel for the appellant. Apart from these, some small points were also argued by the learned counsel for the appellant. In the first place it was submitted that the sales tax authorities had no jurisdiction to impose a penalty of Rs. 1,000 for the delay in filing the return under the Central Sales Tax Act, because there was no provision in the Central Act making a dealer liable to pay penalty for filing belated returns and recourse could not be taken to the provisions of the State Act on the subject. The High Court negatived this plea following two Division Bench judgments of the Madhya Pradesh High Court. The view taken by the High Court on this point is legally erroneous because this court in Khemka & Co. (Agencies) Pvt. Ltd. v. S ..... X X X X Extracts X X X X X X X X Extracts X X X X
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