1952 (10) TMI 28 - SC - VAT / Sales Tax

Sales leading to exports are exempt under Article 286(1)(b) as integrated export transactions even if property passes before shipment

SC held that sales which occasion exports fall within the exemption of Article 286(1)(b). Export sales are integrated transactions-from agreement with a ... Turnover of the sales of the commodities - export sales of the respective commodities to foreign buyers on c.i.f. or f.o.b. terms - Whether sales here in question, which occasioned the export in each case, fall within the scope of the exemption under Article 286(1)(b)? Held that:- We are clearly of opinion that the sales here in question, which occasioned the export in each case, fall within the scope of the exemption under Article 286(1)(b). Such sales must of necessity be put through by transporting the goods by rail or ship or both out of the territory of India, that is to say, by employing the machinery of export. A sale by export thus involves a series of integrated activities commencing from the agreement of sale with a foreign buyer and ending with the delivery of the goods to a common carrier for transport out of the country by land or sea. Such a sale cannot be dissociated from the export without which it cannot be effectuated, and the sale and resultant export form parts of a single transaction. Of these two integrated activities, which together constitute an export sale, whichever first occurs can well be regarded as taking place in the course of the other. Assuming without deciding that the property in the goods in the present cases passed to the foreign buyers and the sales were thus completed within the State before the goods commenced their journey as found by the Sales Tax Authorities, the sales must, nevertheless, be regarded as having taken place in the course of the export and are, therefore, exempt under Article 286(1)(b). That clause, indeed, assumes that the sale has taken place within the limits of the State and exempts it if it takes place in the course of the export of the goods concerned. It might well be argued, in the absence of a provision like clause (b) prohibiting in terms the levy of tax on the sale or purchase of goods where such sales and purchases are effected through the machinery of export and import, that both the powers of taxation, though exclusively vested in the Union and the States respectively, could be exercised in respect of the same sale by export or purchase by import, the sales tax and the export duty being regarded as essentially of a different character. We accordingly hold that whatever else may or may not fall within Article 286(1)(b), sales and purchases which themselves occasion the export or the import of the goods, as the case may be, out of or into the territory of India come within the exemption and that is enough to dispose of these appeals. Issues Involved:1. Interpretation of Article 286(1)(b) of the Constitution regarding exemption from sales tax.2. Determination of whether sales took place 'in the course of the export of the goods out of the territory of India.'3. Scope and meaning of the phrase 'in the course of' in Article 286(1)(b).Detailed Analysis:1. Interpretation of Article 286(1)(b) of the Constitution regarding exemption from sales tax:The respondents claimed exemption from sales tax under Article 286(1)(b) of the Constitution, which states: '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... (b) in the course of the import of the goods into, or export of the goods out of, the territory of India.' The Sales Tax Authorities rejected this claim, arguing that the sales were completed before the goods were shipped and thus did not occur 'in the course of the export.' The High Court of Travancore-Cochin quashed the assessments, interpreting that the sales were part of a series of transactions integral to the export process and thus exempt from sales tax.2. Determination of whether sales took place 'in the course of the export of the goods out of the territory of India':The Supreme Court examined the nature of the transactions, which involved export sales of coir products, lemon grass oil, and tea to foreign buyers on c.i.f. or f.o.b. terms. The Court concluded that the sales occasioned the export in each case and thus fell within the scope of the exemption under Article 286(1)(b). The Court stated: 'A sale by export thus involves a series of integrated activities commencing from the agreement of sale with a foreign buyer and ending with the delivery of the goods to a common carrier for transport out of the country by land or sea.'3. Scope and meaning of the phrase 'in the course of' in Article 286(1)(b):The Court considered various interpretations of the phrase 'in the course of' and four different views were presented:- The narrowest view limited the exemption to sales by export and purchases by import that occasion the export or import.- A broader view included the last purchase by the exporter and the first sale by the importer if directly connected with the export or import.- Another view restricted the exemption to sales and purchases during the transit of goods.- The High Court's view, which was the broadest, included local purchases made for the purpose of export as integral parts of the export process.The Supreme Court rejected the narrow interpretations and held that sales which occasion the export are exempt. The Court emphasized that 'the sale and resultant export form parts of a single transaction' and that 'such a sale cannot be dissociated from the export without which it cannot be effectuated.' The Court concluded: 'We accordingly hold that whatever else may or may not fall within Article 286(1)(b), sales and purchases which themselves occasion the export or the import of the goods, as the case may be, out of or into the territory of India come within the exemption and that is enough to dispose of these appeals.'Conclusion:The Supreme Court upheld the High Court's decision to quash the sales tax assessments, agreeing that the sales in question were exempt under Article 286(1)(b) as they occurred in the course of export. The appeals were dismissed with costs.