1966 (1) TMI 54 - SC - VAT and Sales Tax

Supreme Court Reverses High Court, Exempts Sales from Tax

The Supreme Court allowed the appeals, reversed the High Court's judgment, and quashed the assessment orders. It held that the sales were in the course of ... Sale in the course of import - occasions the import - unconditional appropriation of goods - transfer of documents of title before the goods cross the customs frontier - intention of the contracting parties as to passing of property - interpretation of section 5(2) of the Central Sales Tax ActInterpretation of section 5(2) of the Central Sales Tax Act - sale in the course of import - occasions the import - Whether the supplies of axle-box bodies were sales in the course of import within the meaning of section 5(2) of the Central Sales Tax Act - HELD THAT: - The Court held that section 5(2) deems a sale to be in the course of import if the sale either occasions the import or is effected by transfer of documents of title before the goods cross the customs frontier. The expression 'occasions the movement' in section 3(a) was held to have the same meaning for section 5(2). Relying on precedent construing clause (a) as covering sales where the movement of goods is the result of a covenant or incident of the contract of sale, the Court examined the contract terms and factual matrix. The contract expressly provided for manufacture in Belgium, preinspection there, responsibility of the contractor for safe arrival, fixed delivery dates in India and specific consignees, and a mode of payment tied to inspection and delivery. The movement from Belgium to Madras was shown to be an incident of the contract and not a diversion by the seller. On these facts the Court concluded that the sales occasioned the import and therefore fell within section 5(2) and were exempt from State taxation.Sales were in the course of import under section 5(2) and therefore exempt from taxation.Unconditional appropriation of goods - intention of the contracting parties as to passing of property - Whether property in the goods passed in Belgium by inspection/approval or by unconditional appropriation while the goods were on the high seas - HELD THAT: - The Court rejected the contention that preliminary inspection and approval in Belgium by the purchaser's representative amounted to passing of property there. It emphasised that the question of when property passes depends on the parties' intention as evidenced by the contract. Clause 17(1) reserved to the consignee a final right of rejection on arrival and made the contractor responsible for safe arrival; these terms negatived any conclusive transfer of property on preliminary inspection. Likewise, the Court held that purported directions to clearing agents and bankers to dispatch specified cases did not, by themselves, establish an 'unconditional appropriation' under section 23 of the Sale of Goods Act when the contract contained express provisions preserving the purchaser's right of final rejection and other incidents to completion of sale. Consequently the Tribunal's limited deletions on the basis of unconditional appropriation were not sustained.No passing of property in Belgium on inspection/approval; no unconditional appropriation while goods were in course of import.Final Conclusion: The appeals are allowed: the High Court's contrary conclusion is reversed, the assessments quashed, and the supplies for 1958-59 are held to be sales in the course of import under section 5(2) of the Central Sales Tax Act and hence not taxable; the contention of passing of property in Belgium or of unconditional appropriation is rejected. Issues Involved:1. Whether the sales were in the course of import.2. Whether the property in the goods passed in Belgium.3. Interpretation of Section 5(2) of the Central Sales Tax Act.Issue-wise Detailed Analysis:1. Whether the sales were in the course of import:The primary contention was whether the sales by the assessee to the Government department had occasioned the import of goods and thus were exempt from sales tax under Section 5(2) of the Central Sales Tax Act. The High Court held that before a sale can be said to have occasioned the import, it is necessary that the sale should have preceded the import. The Supreme Court disagreed with this interpretation, stating that the movement of axle-box bodies from Belgium to India was incidental to the contract and thus the sales took place in the course of import. The Court emphasized that 'the 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,' and there was no possibility of these goods being diverted for any other purpose. Consequently, the sales were exempt from taxation.2. Whether the property in the goods passed in Belgium:The High Court rejected the contention that the property in the goods passed to the purchaser at the stage when the goods were approved by the representative in the factory of the manufacturers in Belgium. The Court noted that the contract contained provisions for the inspection and approval of the goods in Belgium, but also included clauses that allowed the ultimate consignee to reject the goods upon arrival in India. This indicated that the property in the goods did not pass to the purchaser in Belgium. The Supreme Court, agreeing with this view, held that the property in the goods did not pass in Belgium and thus the sales were not outside the State within the meaning of Article 286(1)(a) of the Constitution.3. Interpretation of Section 5(2) of the Central Sales Tax Act:Section 5(2) of the Act states that a sale or purchase of goods shall be deemed to take place in the course of the import of the goods into the territory of India only if the sale or purchase either occasions such import or is effected by a transfer of documents of title to the goods before the goods have crossed the customs frontiers of India. The Supreme Court interpreted this section in light of previous judgments, stating that the expression 'occasions the movement of goods' must have the same meaning as in Section 3(a) of the Act. The Court cited Tata Iron and Steel Co. Ltd. v. S. R. Sarkar, which held that a sale occasions the movement of goods when the movement is the result of a covenant or incident of the contract of sale. Applying this interpretation, the Court concluded that the movement of axle-box bodies from Belgium to India was the result of a covenant in the contract of sale, and thus the sales were in the course of import under Section 5(2) of the Act.Conclusion:The Supreme Court allowed the appeals, reversed the judgment of the High Court, and quashed the assessment orders. The Court held that the sales were in the course of import and thus exempt from taxation under Section 5(2) of the Central Sales Tax Act. The appellant was awarded costs for the proceedings in both the Supreme Court and the High Court.