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Issues: (i) Whether section 5(3) of the Central Sales Tax Act, 1956, was ultra vires article 286(2) of the Constitution of India; (ii) whether the expression "the agreement or order for or in relation to such export" in section 5(3) meant only an agreement or order with a foreign buyer; and (iii) when property in coffee sold at the Coffee Board's export auctions passed to the registered exporter for the purpose of section 5(3).
Issue (i): Whether section 5(3) of the Central Sales Tax Act, 1956, was ultra vires article 286(2) of the Constitution of India.
Analysis: The provision was held to be a general rule of legal classification and not a mere legal fiction. The use of the word "deemed" did not prevent the provision from laying down a principle for determining when a penultimate sale falls in the course of export. The chapter heading and the structure of sections 3, 4 and 5 supported the view that Parliament was formulating principles within its constitutional power.
Conclusion: Section 5(3) was held valid and not ultra vires article 286(2).
Issue (ii): Whether the expression "the agreement or order for or in relation to such export" in section 5(3) meant only an agreement or order with a foreign buyer.
Analysis: The language of the provision, read in commercial sense and in context, was held to indicate a foreign buyer's agreement or order. The word "order" was construed as a commercial indent, and by applying noscitur a sociis the associated word "agreement" took the same colour. The Statement of Objects and Reasons showed that the amendment was aimed at relieving exports from tax burden while still confining the exemption to penultimate sales linked to an actual export contract. A local covenant to export was held not sufficient.
Conclusion: The expression was held to refer to an agreement or order with a foreign buyer, not merely a local agreement to export.
Issue (iii): When property in coffee sold at the Coffee Board's export auctions passed to the registered exporter for the purpose of section 5(3).
Analysis: Section 64(2) of the Sale of Goods Act, 1930, was held to govern completion of the auction contract and not, by itself, the passing of property. The auction conditions were binding, and clause 19 expressly postponed transfer of property until full price was paid and the coffee was weighed and set apart for delivery. Clause 31 was held to operate as a defeasance clause on default and not as a reservation of the right of disposal under section 25(1) of the Sale of Goods Act, 1930.
Conclusion: Property passed immediately upon payment of full price, weighment and setting apart of the coffee for delivery, and the foreign buyer's agreement or order had to exist before that stage.
Final Conclusion: The circular was quashed to the extent it required production of a foreign buyer's agreement or order and contingency deposits or bank guarantees before participation in the auctions. The exemption under section 5(3) was confined to penultimate sales completed before the property passed, and the petitions succeeded only to that extent.
Ratio Decidendi: A penultimate sale qualifies under section 5(3) only if, before the sale becomes complete by transfer of property, there already exists a foreign buyer's agreement or order to which the sale is referable and which the sale is made to satisfy.
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