Bunker coal sales and constitutional tax limits: delivery to an in-State consumer brought the transactions within the statutory exemption.

Sales of bunker coal supplied to steamers were not sales in the course of export, because export protection applies only where the goods are part of an export movement with two termini directed to a foreign destination. The transactions did have an inter-State element, but the levy was not avoided on that ground because the constitutional objection was displaced by later validation. The sales nonetheless fell within the Explanation to Article 286(1)(a), as delivery was made to the actual consumer in the State for use by that consumer. A valid exemption notification under the Travancore-Cochin Sales Tax Act applied, so the tax demand could not be sustained.

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Issues: (i) whether the sales of bunker coal were sales in the course of export within Article 286(1)(b) of the Constitution; (ii) whether the sales were nonetheless protected by Article 286(2) as sales in the course of inter-State trade and commerce; (iii) whether the sales fell within the Explanation to Article 286(1)(a) as deliveries in the State for the purpose of consumption therein; and (iv) whether the exemption notification issued under section 6(1) of the Travancore-Cochin Sales Tax Act, 1125 applied to the transactions.

Issue (i): whether the sales of bunker coal were sales in the course of export within Article 286(1)(b) of the Constitution.

Analysis: A sale is in the course of export only when the goods are intended to move to a destination outside India and are part of an export movement with two termini. Mere movement of goods out of the country after the sale is not enough. The coal supplied to steamers for their voyage, though taken outside the State, was not shown to be intended for import into any foreign destination as part of an export movement.

Conclusion: The sales were not in the course of export and the contention failed.

Issue (ii): whether the sales were nonetheless protected by Article 286(2) as sales in the course of inter-State trade and commerce.

Analysis: The transaction had an inter-State element because the coal moved from Madras territory to Travancore-Cochin pursuant to the sale. However, the constitutional ban in Article 286(2) stood displaced by the Sales Tax Laws Validation Act, 1956, and the earlier view that no tax could be levied under the State Act could not survive the later authoritative construction governing validation.

Conclusion: The sales were within Article 286(2), but the levy was validated and this ground did not exempt the assessee.

Issue (iii): whether the sales fell within the Explanation to Article 286(1)(a) as deliveries in the State for the purpose of consumption therein.

Analysis: The coal was delivered to the actual consumer in Travancore-Cochin waters for use by the ship, and the buyer was at liberty to consume it within the State or elsewhere according to its own choice. Delivery to an ultimate consumer with freedom to use the goods in the State is sufficient to attract the Explanation, even if part of the goods may later be carried away.

Conclusion: The sales fell within the Explanation to Article 286(1)(a).

Issue (iv): whether the exemption notification issued under section 6(1) of the Travancore-Cochin Sales Tax Act, 1125 applied to the transactions.

Analysis: The notification, issued in the Gazette, was a valid exercise of the statutory power to exempt specified sales and was designed to grant relief to non-resident dealers in inter-State transactions treated as intra-State sales by reason of the constitutional explanation. The assessee's transactions and the relevant assessment years were within its scope.

Conclusion: The assessee was entitled to the benefit of the exemption notification.

Final Conclusion: The tax demand could not be sustained because, although the sales were not exempt as export sales and the inter-State trade objection did not prevail after validation, the transactions were covered by the statutory exemption notification; the appeal therefore failed.

Ratio Decidendi: A sale to an ultimate consumer delivered within the State for use by that consumer falls within the Explanation to Article 286(1)(a), and where a valid statutory notification exempts such transactions, the assessee is entitled to the exemption notwithstanding the existence of an inter-State element or a later validation of the levy.

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