1960 (10) TMI 57 - SC - VAT and Sales Tax

Supreme Court Upholds Sales Tax Exemption for 'Bunker Coal' Sales

The Supreme Court upheld the High Court's decision in favor of the respondent-company, ruling that the sales of 'bunker coal' were exempt from sales tax ... Construction of 'export' under Article 286(1)(b) - Explanation to Article 286(1)(a) - delivery for purpose of consumption - taxation of interState sales falling within the Explanation to Article 286(1)(a) - Sales Tax exemption by executive notification under statutory power - interaction between Article 286(2) ban and Validation of preConstitutional leviesConstruction of 'export' under Article 286(1)(b) - requirement of two termini for export - Whether the sale of bunker coal trimmed into steamers was a sale 'in the course of export' within Article 286(1)(b). - HELD THAT: - The Court rejected the contention that the sales were 'in the course of export.' Relying on the principle that the concept of 'export' in Article 286 postulates the existence of two termini (an importation at a foreign destination), mere movement of goods out of India was held insufficient. The sale of coal to a steamer which might carry it outside India did not establish an intended importation into a foreign locality and therefore did not make the transaction an export within Article 286(1)(b).The sales were not 'in the course of export' within Article 286(1)(b).Explanation to Article 286(1)(a) - delivery for purpose of consumption - taxation of interState sales falling within the Explanation - Whether the sales fell within the Explanation to Article 286(1)(a) as sales delivered in the State for the purpose of consumption. - HELD THAT: - The Court held that the coal, though moved from Candle Island (Madras) into TravancoreCochin waters as a result of the sale, was delivered in TravancoreCochin to the ultimate consumer (the ship) and that delivery was for the purpose of consumption in the State. The buyer (ship) had the choice to consume the coal within the State or to take it outside, but that choice did not alter the character of the delivery as being for consumption in the State. The Court distinguished cases where the buyer is contractually or legally incapable of consuming the goods within the State.The sales fell within the Explanation to Article 286(1)(a) as deliveries in the State for the purpose of consumption.Sales Tax exemption by executive notification under statutory power - section 6(1) power to exempt classes of sales or persons - Whether the State Government's Gazette notification (dated February 5, 1954) issued under section 6 of the Sales Tax Act operated to exempt the respondent's sales for the assessment periods in question. - HELD THAT: - The Court held that the notification was a valid exercise of the Government's power under section 6(1) to exempt specified classes of sales and was intended to forego levy for the period before 1 April 1953. The notification specifically addressed nonresident dealers engaged in interState transactions which, after the United Motors interpretation, were regarded as intraState by reason of the Explanation to Article 286(1)(a). The Sales Tax Officer in earlier proceedings had not challenged the statutory character of the notification but contested only its applicability; on the facts the respondent's transactions fell within the scope of the notification and thus were exempt for the assessment years 195152 and 195253.The Gazette notification under section 6(1) effectively exempted the respondent's sales for the relevant assessment periods and the respondent was entitled to that exemption.Final Conclusion: The Court dismissed the appeal: the sales were not 'in the course of export' under Article 286(1)(b), they did fall within the Explanation to Article 286(1)(a) as deliveries in the State for consumption, and the State Government's notification under section 6(1) validly exempted such sales for the assessment years 195152 and 195253, entitling the respondent to the exemption. Issues Involved:1. Liability of the respondent to sales tax under the United State of Travancore and Cochin General Sales Tax Act, 1125 (1950).2. Whether the sale was 'in the course of export' or 'in the course of inter-State trade' under Article 286 of the Constitution.3. Applicability of the Sales Tax Laws Validation Act, 1956.4. Interpretation of the Explanation to Article 286(1)(a) of the Constitution.5. Validity and applicability of the notification dated February 5, 1954, exempting certain sales from tax.Detailed Analysis:1. Liability of the Respondent to Sales Tax:The Cochin Coal Company Ltd., referred to as the respondent-company, was assessed for sales tax on the sales of 'bunker coal' for the assessment years 1951-52 and 1952-53 by the Sales Tax Officer, I Circle, Mattancherry. The respondent-company contended that the sales were either 'in the course of export' or 'in the course of inter-State trade' and thus exempt from taxation under Article 286 of the Constitution. The assessing officer rejected this contention, stating that the sales fell within the Explanation to Article 286(1)(a) and were therefore taxable by the State of Travancore-Cochin.2. Whether the Sale was 'in the course of export' or 'in the course of inter-State trade':The High Court held that the sales were in the course of inter-State trade and covered by the ban under Article 286(2). However, this was contested by the State Government, which argued that the Sales Tax Laws Validation Act, 1956, validated the tax. The Supreme Court acknowledged that the transactions were in the course of inter-State trade but noted that the High Court's interpretation of section 26 of the Travancore-Cochin General Sales Tax Act was incorrect based on the decision in M.P.V. Sundararamier & Co. v. The State of Andhra Pradesh & Another.3. Applicability of the Sales Tax Laws Validation Act, 1956:The Supreme Court noted that if the respondent-company relied solely on Article 286(2) for relief, the Sales Tax Validation Act, 1956, would validate the levy. However, the respondent-company also argued that the sales were 'in the course of export' under Article 286(1)(b). The Supreme Court rejected this argument, referencing the decision in Burmah Shell Oil Storage & Distributing Co. of India, Ltd. v. Commercial Tax Officer, which clarified that mere movement of goods out of the country does not constitute export unless the goods are intended to be transported to a destination beyond India.4. Interpretation of the Explanation to Article 286(1)(a):The Supreme Court held that the sales fell within the Explanation to Article 286(1)(a) as the delivery of coal was effected in Travancore-Cochin for consumption in that State. The Court explained that the coal was delivered to the ultimate consumer (the steam-ship company) who could use it within the State or take it outside, but this choice did not detract from the delivery being for consumption within the State. The Court emphasized that the crucial fact was the delivery to the actual consumer who had the liberty to consume the goods wherever desired.5. Validity and Applicability of the Notification dated February 5, 1954:The Supreme Court considered the notification dated February 5, 1954, which exempted certain sales from tax. The notification was issued under section 6 of the Travancore-Cochin Sales Tax Act, which allowed the Government to exempt specified classes of goods or persons from tax. The Court found that the respondent-company's transactions fell within the scope of this notification, which exempted sales by non-resident dealers engaged in inter-State transactions, as interpreted in the United Motors case. The Court concluded that the respondent-company was entitled to the benefit of the tax exemption conferred by the notification.Conclusion:The Supreme Court dismissed the appeal, upholding the High Court's decision in favor of the respondent-company. The Court ruled that the sales of 'bunker coal' by the respondent-company were exempt from sales tax under the notification dated February 5, 1954, and thus the respondent-company was entitled to the benefit of this exemption. The appeal was dismissed with costs.