TaxTMI 
TaxTMI 
1987 (1) TMI 459
X X X X Extracts X X X X
X X X X Extracts X X X X
....accordingly the sales in that year are also liable to tax under the Tamil Nadu General Sales Tax Act. In respect of the year 1975-76, the revision petitioner reported a total turnover of Rs. 31,26,979.78 and taxable turnover of Rs. 23,40,489.91 under the Tamil Nadu General Sales Tax Act. The joint Commercial Tax Officer, Rattan Bazaar Circle, who verified the accounts found the total turnover reported to agree with the book figures. However, he did not accept the claim of interState sales on a turnover of Rs. 7,86,491.00. He thus determined the taxable turnover at Rs. 31,26,980.00. It is this disallowance of the claim of inter-State sales that has given rise for the appeal before the Appellate Assistant Commissioner which was not successful and ultimately this appeal under section 36 of the Act before the Tribunal. In respect of the year 1976-77, the revision petitioner herein reported a total turnover of Rs. 80,13,922.00, and taxable turnover of Rs. 44,72,788.00. In that year also, the claim of inter-State sales on a turnover of Rs. 31,82,601.00 was disallowed by the assessing officer and the taxable turnover was determined at Rs. 76,55,390.00. The revision petitioner filed ....
X X X X Extracts X X X X
X X X X Extracts X X X X
....led by Bombay buyers at which point the invoice of sale was handed over along with delivery challan. According to the revision petitioner, all the ingredients of the sale took place at Bombay when the goods were delivered and property passed. The revision petitioner reserved right to question even the very assessability under the Central Sales Tax Act, 1956, considering that the sale itself took place only in Maharashtra State. The parties to the contract have already endeavoured to bring about inter-State sales for which the buyers have issued C declarations. The revision petitioner collected Central sales tax. Thus the intention of the seller and the buyer was clear from the above transaction. The revision petitioner submits that the authorities had no material to arrive at a conclusion contrary to the basic intent of the parties. At the time of hearing, the learned counsel for the revision petitioner explained before the authorities the procedure relating to the auctions conducted by the persons at Madras. He filed copies of the rules governing the auctions for sale of gems and diamonds and the special modification for rule 11 made temporarily in respect of the 55th....
X X X X Extracts X X X X
X X X X Extracts X X X X
....e invoices that the first part of the invoice in each case was drawn up at Madras on the date of auction itself and the second half of the invoice was completed at Bombay after realising the value and allowing the appropriate cash rebate varying with reference to the promptness of payment and that is another indication of the sale being completed in Bombay. By a special letter given, the buyers produced the C forms and according to the decision in Glenrock Wood and Allied Enterprises v. State of Tamil Nadu [1975] 36 STC 316 (Mad.), the issue of C forms is one of the indications of the intention of the parties to sell and to buy on inter-State basis. Mr. Bakthavatsalam, learned Additional Government Pleader, on behalf of the Revenue contended, inter alia, that according to rule 7 of the auction rules, on the fall of the hammer the highest bidder will be deemed to be the purchaser and he should pay in cash or by a demand draft a deposit of 25 per cent of the purchase value. Again according to rule 10, the diamonds are put into a packet and sealed by the Presiding Officer and the buyer is also entitled to affix his own seal on such packets. These factors would show that the sale wa....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... As regards the retention of goods for 14 days by the revision petitioner for delivery without payment of interest, he explained that though it was possible for the buyers to take delivery within the Madras State by paying the value (without any interest), in the instant cases, the intention of the parties was quite different as the buyers had given letters that the goods be despatched to the Bombay State and that they had issued C form for that purpose and would be agreeable to the rate of tax at 4 per cent. As regards interest, he pointed out that that was only an incidental charge which was agreed to by the parties and that by itself would not mean that the transaction was already concluded on the date of auction. As regards constructive delivery, the learned counsel explained that under the Sale of Goods Act, constructive delivery would take place only if something is done by the seller to signify a delivery, for example by the issue of a delivery note. Learned counsel for the revision petitioner pointed out that in the instant cases there was no issue of delivery note or any other document signifying such constructive delivery and in fact the delivery note was issued onl....
X X X X Extracts X X X X
X X X X Extracts X X X X
....or which the sum representing 25 per cent of the value of the bid has been paid by the successful bidder, is sealed in an envelope and signed by the Presiding Officer in the presence of the bidder. The bidder also puts his own seal on the packet, if he desires to do so. The invoice is prepared forthwith indicating the item number, the weight of the item, the price accepted and the total value and also the security deposit amount paid by the successful bidder. From the 55th auction held in January, 1976 onwards, the delivery of the diamond lots sold is made either at Madras or at Bombay on the basis of the stipulation made by the bidder concerned as to whether the bid and purchase are subject to delivery at Bombay on payment of Central sales tax, instead of at Madras. Delivery at Bombay is arranged only in cases where the purchaser confirms in writing that the purchases made by him are subject to delivery at Bombay. Deliveries at Madras during the course of the auction are made by the corporation's representative on collection from the purchaser of the outstanding amounts due, i.e., the sale value plus NMDC service charges plus interest on the outstanding balance, if any due, plus T....
X X X X Extracts X X X X
X X X X Extracts X X X X
....r purchase of goods shall be deemed to take place in the course of inter-State trade or commerce if the sale or purchase- (a) occasions the movement of goods from one State to another; or (b) is effected by a transfer of documents of title to the goods during their movement from one State to another. Explanation 1-Where goods are delivered to a carrier or other bailee for transmission, the movement of the goods shall, for the purposes of clause (b), be deemed to commence at the time of such delivery and terminate at the time when delivery is taken from such carrier or bailee. Explanation 2.-Where the movement of goods commences and terminates in the same State it shall not be deemed to be a movement of goods from one State to another by reason merely of the fact that in the course of such movement the goods pass through the territory of any other State. 4.. When is a sale or Purchase of goods said to take place outside a State.- (1) Subject to the provisions contained in section 3, when a sale or purchase of goods is determined in accordance with sub-section (2) to take place inside a State, such sale or purchase shall be deemed to have taken place outside all other ....
X X X X Extracts X X X X
X X X X Extracts X X X X
....the auction (i.e., interest will be remitted for 10 days), (c) within a period exceeding 60 days but not exceeding 150 days from the close of the auction, together with interest on monthly rests on the balance outstanding, at the rate of 17 per cent per annum, reckoned from the 11th day to the 150th day of the close of the auction, and at the rate of 18 per cent per annum on monthly rests reckoned from the close of the auction. (ii) For all other buyers, not falling in category (i) specified above, the following payment and delivery terms will apply. An auction purchaser shall have option of making full payment of the bid value together with taxes due under rule 12 of these rules in the following manner: (a) At the place of auction within 14 days of the close of the auction either in cash or by demand draft drawn on State Bank of India, Panna (M.P.) in favour of NMDC Ltd. No interest will be chargeable for this period. (b) 1. Within a period exceeding 14 days but not exceeding 60 days from the close of the auction, together with interest on monthly rests thereon at the rate of 16 per cent per annum, reckoned from the 11th day of the close of the auction (i.e., intere....
X X X X Extracts X X X X
X X X X Extracts X X X X
....mporarily replaced by following another procedure and that this temporary replacement of the rule cannot be taken as an important criteria to determine the sale in the present transaction as inter-State sale or intra-State sale. In this regard Mr. Natarajan, learned counsel for the revision petitioners, would point out that in the temporarily replaced provision of rule 11, it is only the original rule 11-A(1) that has been modified to a certain extent and that there is no specific modification in the auction rules. In the temporarily replaced rule 11 it is seen that there are provisions relating to the delivery of diamond within 30 days of the close of the 55th auction. Deliveries between Purchase by a single purchaser 1 to 15 days 16 to 30 days at the 55th auction. cash rebate of cash rebate of ------------------------------------------------------------------------------------------- (i) Of a value upto Rs. 50,000 3 per cent 2 per cent (ii) Of a value between Rs. 50,001 and Rs. 1,00,000 4 per cent 3 per cent (iii) Of a value of Rs. 1,00,001 and above. 5 per cent 4 per cent Note: 1. For purposes of determining the value of purchases by a "single buyer....
X X X X Extracts X X X X
X X X X Extracts X X X X
....-------------------------------------------------------------------------------------------------------------- Mr. C. Natarajan, learned counsel for the revision petitioners, also points out that there is a forfeiture clause in the rule governing the auction for sale of off-colour and industrial diamonds. Clause 2, rule (iii) reads as follows: "Failure to deposit the sale price in full, together with taxes due thereon under rule 12 of these rules, shall entail forfeiture of the deposit made under the rules." It is pointed out that as per rule 11 of the auction rules, which stood temporarily replaced by the procedure in respect of the 55th diamond auction at Madras commencing from 19th January, 1976 also, there is a clause which has a bearing on the question whether a transaction involved in the auction sale constitutes inter-State sale or intra-State sale. Rule 11, as it stood temporarily replaced by clause 2 provides as follows: "No extension of time beyond 90 days of the close of the auction will ordinarily be allowed for taking deliveries. In any case, the grant of such extension is solely at the discretion of the corporation and cannot be insisted upon by an auction....
X X X X Extracts X X X X
X X X X Extracts X X X X
....concluded on the fall of the hammer. We have already set out in detail the rules governing the auction sales as per the provisions of section 64 of the Sale of Goods Act. In this regard, the ratio in Hanutmal Bhutoria v. Dominion of India AIR 1961 Cal 54 is pointed out by Mr. Natarajan, learned counsel for the revision petitioners. In the said decision, it was laid down thus: "The explanation to section 148, Contract Act makes it clear that a seller can become a bailee if he contracts to hold the goods as a bailee. In the absence of such a contract, he cannot be regarded as a bailee. The second proviso to section 26, Sale of Goods Act applies to a case where the seller or the buyer holds the goods in the capacity of bailee either under a contract of bailment or under circumstances which give rise to the relationship of bailor and bailee. The second proviso means that the operation of the provisions of section 26 is excluded when the buyer or the seller happens to hold the goods in the character of a bailee. There is no automatic bailment created by operation of law. Where the condition of auction sale provided that the lots would be at the risk and expense of the....
X X X X Extracts X X X X
X X X X Extracts X X X X
....normally passed on the fall of the hammer and there was no special condition in the auction rules to exclude the application of the prima facie rule characterising auction sale." At pages 171-172 His Lordship observed: "I come now to consider the second point on which I understand is this that the property in the circumstances of this case did not pass until the price was paid by the cheque being in order or cash substituted for it. The circumstances in regard to that I have already stated, and it remains only to consider the law. In the first place, as I have said, I think that a contract of sale is concluded at an auction sale on the fall of the hammer. The Sale of Goods Act, 1893, section 18 provides: "Where there is an unconditional contract for the sale of specific goods, in a deliverable state, the property in the goods passes to the buyer when the contract is made, and it is immaterial whether the time of payment or the time of delivery, or both, be postponed.' Accordingly, upon the fall of the hammer the property of this car passed to King unless that Prima facie rule is excluded from applying because of a different intention appearing or because there was some con....
X X X X Extracts X X X X
X X X X Extracts X X X X
....th section 25 of the Sale of Goods Act (this being the principal plea of the petitioners)? It will be desirable to set out the concerned provisions in order to appreciate properly the rival submissions of the counsel based thereon. According to the counsel for the three States, section 64 is a special provision in the Sale of Goods Act which deals with auction sales and under sub-section (2) thereof, the sale is complete no sooner the auctioneer makes an announcement in that behalf either by fall of the hammer or in other customary manner and, therefore, the property in the goods sold thereat passes at the fall of the hammer or immediately after the announcement of completion is made in any other customary manner and since in the instant case the Coffee Board conducts export auctions of coffee in lots which are specified in catalogues supplied to the auction purchasers beforehand, the property in the coffee sold thereat must be regarded as having passed to the buyer at the fall of the hammer when the successful bid is entered in the register of bids under the signature of the bidder as per clauses 10 and 11 of the auction conditions. As regards clause 19, a twofold argument was urg....
X X X X Extracts X X X X
X X X X Extracts X X X X
....e light of the provisions of the Tamil Nadu General Sales Tax Act, 1959 and the Central Sales Tax Act, 1956, we do find that the contention raised on behalf of the revision petitioners herein cannot be held to be wholly unsustainable. The decision in State of Gujarat v. Bombay Metal Alloys and Manufacturing Co. P. Ltd. [1983] 54 STC 45 (Guj) is relied on for the proposition that the mere fact that the contract of sale itself does not provide for or occasion a movement of goods would not be an impediment in the way of holding that section 3(a) of the Central Sales Tax Act, 1956, applies provided it is established that the movement of goods from one State to another is in pursuance of or incidental to the contract of sale. If there is a conceivable link between the contract of sale and the movement of goods from one State to another which is not otherwise explained, the transaction in question will have to be regarded as a "sale " or "purchase" as the case may be, in the course of inter-State trade. In the said decision, it was held further that the contract of sale itself was not shown to have provided for the movement of goods and the movement of goods was not shown to ha....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... India Ltd. v. Superintendent of Taxes [1975] 35 STC 445 (SC) lays down that the movement of crude oil from the State of Assam to the State of Bihar was an incident of the contract of sale and, therefore, the sales to the refinery at Barauni were sales in the course of inter-State trade. The Bihar Government had no jurisdiction to tax the sales under the sales tax law of that State and the petitioner was entitled to the refund of tax collected from it by the Bihar Government. In the above case, the Supreme Court has held that no matter in which State the property in the goods passes, a sale which occasions "movement of goods from one State to another is a sale in the course of inter-State trade". The inter-State movement must be the result of a covenant, express or implied, in the contract of sale or an incident of the contract. It is not necessary that the sale must precede the inter-State movement in order that the sale may be deemed to have occasioned such movement. It is also not necessary for a sale to be deemed to have taken place in the course of inter-State trade or commerce, that the covenant regarding inter-State movement must be specified in the contract itself. It would....
X X X X Extracts X X X X
X X X X Extracts X X X X
....3] 4 STC 205 relied upon by counsel for the State of West Bengal have no bearing on the interpretation of section 3, clauses (a) and (b). In those cases, the meaning of the expressions, 'in the course of import and export' and 'in the course of inter-State trade or commerce' used in article 286 fell to be determined. The Constitution does not define these expressions. The Parliament has in the Central Sales Tax Act, 1956, sought to define by section 3 when a sale or purchase of goods is said to take place in the course of inter-State trade or commerce and by section 4(1) to define when a sale or purchase of goods is said to take place outside a State and by section 5, when a sale or purchase is said to take place in the course of import or export. In interpreting these definition clauses, it would be inappropriate to requisition in aid the observations made in ascertaining the true nature and incidents without the assistance of any definition clause of 'sales outside the State' and 'sales in the course of import or export' and 'sales in the course of inter-State trade or commerce' used in article 286. In our view, therefore, within clause (b) of section 3 are included sales in w....
X X X X Extracts X X X X
X X X X Extracts X X X X
....the leading newspapers. The notices are also sent to the Diamond Merchants' Associations in various cities for circulation to its members. On the day of the commencement of the auction, the merchants desirous of participating in the auction, register themselves at the auction centre and obtain admit cards on payment of a refundable sum of Rs. 2,000 each. The diamond lots put up for auction are displayed at the auction centre for inspection by the registered merchants. Before the commencement of inspection, the participating persons are issued the rules governing the auction and the catalogues listing the items put up for inspection and sale. Upon completion of inspection of the lots put on displays the said lots are taken up for auction. The registered merchants present are invited to offer bids. After a bid is accepted by the Presiding Officer and is knocked down, the successful purchaser is required to sign the bid register in token of his agreement to purchase the concerned item and to pay security deposit of 25 per cent of the sale value of the concerned item for which a receipt is issued to him. The lot for which the sum representing 25 per cent of the value of the bid has bee....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... is complete in Madras attracting levy of Tamil Nadu general sales tax or whether it is an inter-State sale liable to Central sales tax." It is relevant in this connection to note that in the assessment order dated 4th December, 1976 by the joint Commercial Tax Officer, Rattan Bazaar Circle, Madras-1, he has observed thus in paragraph 3: "It is seen therefrom that after the purchases, the buyer has given detailed instructions about the despatch of goods to Bombay by V.P.P. The buyer (as per para 4 of the letter) has indemnified the National Mineral Development Corporation against any loss or damage in transit, and the buyer has been separately charged 0.75 per cent of the purchase value towards the services done by the National Mineral Development Corporation in despatching the diamonds in convenient packets so that the value does not exceed Rs. 10,000 in each packet." For the sake of completion, we have referred to the above observation of the assessing authority since it has got a bearing on the arguments advanced by either side in the transactions involved. The Appellate Assistant Commissioner (CT) II, Madras City in his order dated 20th June, 1977, has observed: ....
X X X X Extracts X X X X
X X X X Extracts X X X X
....oned from the close of the auction. No request for extension of the delivery period beyond this shall ordinarily be entertained." It is also brought to our notice that this rule 11 was substituted for the 55th diamond auction held at Madras which commenced from January, 1976. In the instant case before us, we find that the petitioners-National Mineral Development Corporation Limited, are Government of India undertaking owning a diamond mining project with two diamond mines in Panna (M.P.). The diamonds cut from these mines are periodically sold in rough (uncut) form in auctions in various centres in the country. The date and venue of the auctions are notified to the public through advertisements in leading newspapers. On the day of commencement of the auction, merchants desirous of participating in the auction, register themselves at the auction centre and obtain admit cards on payment of a refundable sum of Rs. 2,000 each. The diamond lots put up for auction are displayed at the auction centre for inspection by the registered merchants. Before the commencement of inspection, the participating persons are issued the rules governing the auction and the catalogues listing the item....
X X X X Extracts X X X X
X X X X Extracts X X X X
....n to article 286(1)(a) was inapplicable because there was no delivery as a direct result of sale for the purpose of consumption in any particular State; (2) that therefore both the categories of sales (teas taken to other parts of India and those exported out of India) were not inside the State of TravancoreCochin but were outside that State and were not liable to be taxed under the Travancore-Cochin General Sales Tax Act, 1125." Mr. Bakthavatsalam, the learned Additional Government Pleader, has taken us through the observation of their Lordships of the Supreme Court at pages 367 to 369 which runs as follows: "In the present case as soon as the hammer fell the title in the goods passed to the buyer as the goods were specific goods, i.e., goods which were auctioned in full lots and this event took place at Fort Cochin which was in the State of Madras. But in the case of unascertained goods the title in the goods does not pass to the buyer unless and until the goods are ascertained. It was for this reason that a distinction was drawn by the Sales Tax Appellate Tribunal between goods which were sold in full lots and those which were sold in portions. In regard to the former i....
X X X X Extracts X X X X
X X X X Extracts X X X X
....decision that the opening words of article 286(1) which speak of a a sale or purchase taking place and the non obstante clause in the explanation, which refers to the general law relating to the sale of goods, indicated that it was the 'passing of property within the State' that was intended to be fastened on for the purpose of determining, whether the sale in question was 'inside' or outside' the State and therefore subject to the operation of the 'explanation', that State in which property passed would be the only State which would have the power to levy a tax on the sale. At page 286 it was observed: 'The conclusion reached therefore is that where the property in the goods passed within a State as a direct result of the sale, the sale transaction is not outside the State for the purpose of article 286(1)(a), unless the explanation operates.' The majority decision in India Copper Corporation Ltd. v. State of Bihar [1961] 2 SCR 276, 286; [1961] 12 STC 56 (SC), 64 concludes the point in favour of the appellant. On the facts of this case it was found by the Sales Tax Appellate Tribunal that in regard to the sales of tea in 'full lots' the property passed at Fort Cochin and thi....
X X X X Extracts X X X X
X X X X Extracts X X X X
....unconditional contract for the sale of specific goods in a deliverable state, the property in the goods passes to the buyer when the contract is made, and it is immaterial whether the time of payment of the price or the time of delivery of the goods, or both, is postponed." In the instant case before us, though the auction took place in the State of Tamil Nadu, yet the delivery, viz., the diamonds in the instant case have to be given only at Bombay as per the agreement since it is only 25 per cent of the consideration that is actually paid soon after the fall of the hammer in the transaction of auction. A payment that has to be made at Bombay by the purchaser has nothing to do with the sale which was completed at Madras by the fall of hammer in favour of the revision petitioners. In this regard the decision in Dennant v. Skinner and Collom [1948] 2 All ER 29 is referred to. At page 190 of Consolidated Coffee Ltd. v. Coffee Board [1980] 46 STC 164 their Lordships of the Supreme Court referred to this decision reported in Dennant v. Skinner and Collom [1948] 2 All ER 29. The decision in A.V. Thomas & Co. Ltd. v. Deputy Commissioner of Agricultural Income-tax and Sales Tax, Trivand....
X X X X Extracts X X X X
X X X X Extracts X X X X
....bsp; It will be observed that the definition of a contract of sale above-cited includes a mere agreement to sell as well as an actual sale." This distinction between sales and agreements to sell based upon the passing of the property in the goods is of great importance in determining the rights of parties under a contract.' It would thus appear that this court clearly held that an agreement to sell by which the property did not actually pass was also an element of sale. Of course in that case the court had to decide a different point, namely, whether it was within the competence of a State Legislature to tax not a sale but even an agreement to sell, where an actual sale had not taken place. This court held that the State Legislature was not competent to make such a levy under any statute passed by it. Section 3 of the Central Sales Tax Act, 1956, runs thus: '3. A sale or purchase of goods shall be deemed to take place in the course of inter-State trade or commerce if the sale or purchase,- (a) occasions the movement of goods from one State to another; or (b) is effected by a transfer of documents of title to the goods during their movement from on....
X X X X Extracts X X X X
X X X X Extracts X X X X
....lusion that follows from the combined effect of the interpretation of section 3 of the Central Sales Tax Act and section 4 of the Sale of Goods Act is that an agreement to sell is also an essential ingredient of sale provided it contains a stipulation for transfer of goods from the seller to the buyer. This being the position if there is a movement of goods from one State to another, not in pursuance of the sale itself, but in pursuance of an agreement to sell, which later merges into a sale, the movement of goods would be deemed to have been occasioned by the sale itself wherever it takes place. In this view of the matter, the question as to whether agreement to sell was a forward contract or a contract in respect of unascertainable or future goods would make no difference for the simple reason that when once a sale takes place, or for that matter when the goods start moving from one State to another in pursuance of the agreement to sell they cease to be future goods because they are in existence and they become also ascertainable. The argument of the learned counsel for the appellant is based on a clear fallacy because it seeks to draw an artificial distinction between a contract....
X X X X Extracts X X X X
X X X X Extracts X X X X
....ditional on payment or tender of the price [Tarling v. Baxter (1827) 6 B & C 360. Cf. Noy's Maxims, 87-89]. Under section 28 of the Act, unless otherwise agreed, delivery of the goods and payment of the price are concurrent conditions; and under section 39(1) a seller has in certain circumstances a right to withhold delivery and to retain possession of the goods until payment by virtue of an unpaid seller's lien. But passing of the property and the right to possession are two different things (Dennant v. Skinner and Collom [1948] 2 KB 164, 172). Thus if postponement of the purchase price and the delivery of the goods can properly be described as a postponement of the completion of the purchase, the property will pass on the entering into the contract, although in that sense the completion of the purchase is deferred [Re Anchor Line (Henderson Bros.) Ltd. [1937] 1 Ch 1, 9]. It is important, however, to bear in mind that the governing principle is that contained in section 17, and it has been said that 'in modern times very little is needed to give rise to the inference that the property in specific goods is to pass only on delivery or payment [Ward (R.V.) Ltd. v. Bignall [1967].1 QB....
X X X X Extracts X X X X
X X X X Extracts X X X X
....1900] 1 QB 513, 517 concerned a sale of goods by description. Channell, J., appears to have regarded the description as an identification of the goods contracted to be sold, for he says ([1900] 1 QB 513, 517): 'If a man says he will sell the black horse in the last stall in his stable, and the stall is empty, or there is no horse in it, but only a cow, no property could pass. Again, if he says he will sell a four-year old horse in the last stall, and there is a horse in the stall, but it is not a four-year old, the property would not pass. But if he says he will sell a four-year old horse, and there is a four-year old horse in the stall, and he says the horse is sound, this last statement would only be a collateral warranty.' It is therefore not unreasonable to suppose that he intended to lay down a different proposition, viz., that where goods are sold by description, and the description identifies the goods [Cf. Parsons v. Sexton (1847) 4 CB 899], no property will pass in any goods other than those which correspond with the description (See Vigers Brothers v. Sanderson Brothers [1901] 1 QB 608). The difficulty lies in reconciling the concepts of specific goods' and a 'sale of goo....
X X X X Extracts X X X X
X X X X Extracts X X X X
....eau of Revenue (1938) 303 US 250 a shift of judicial approach is discernible. It was there held that a privilege tax upon the gross receipts of those engaged in certain specified businesses was valid though the business may be of an inter-State character. Such a tax should be scrutinised to see whether it is one' which may be imposed by another State on the same activity or transaction and thus carries the risk of a cumulative or multiple tax burden. In the absence of such a risk the tax would be unobjectionable. Stone, J., observed that it was not the purpose of the commerce clause to relieve those engaged in inter-State commerce from their just share of State tax burden even though it increases the cost of doing the business. This decision paved the way for the recognition of the validity of the use and sales taxes. In McGoldric v. Berwind-White Co. (1940) 309 US 33, it was held that a New York City sales tax on coal shipped into the city in inter-State commerce and there sold was not unconstitutional. As the tax did not discriminate against inter-State commerce, it was held to be legal. "Non-discriminatory taxation of the instrumentalities of inter-State commerce is not prohibit....
X X X X Extracts X X X X
X X X X Extracts X X X X
....n the importer has so acted upon the thing imported that it has become incorporated and mixed up with the mass of property in the country, it has perhaps lost its distinctive character as an import and has become subject to the taxing power of the State; but while remaining the property of the importer in his warehouse in the original form or package in which it was imported, a tax upon it is too plainly a duty on import to escape the prohibition of the Constitution. The right to import includes the right to sell it in the original bags before it loses its distinctive character as an import. So, the first sale within the State in the original packages should be exempt from taxation by the State." In the instant case, it is common ground that the diamonds have been the subject-matter of the auction by the fall of the hammer and the said packets containing diamonds are sealed by the auctioneers as well as by the person who has been successful in his bid and as such, can this aspect alone give all the characteristics of a completed sale, thereby making the transaction liable to be taxed by the Tamil Nadu General Sales Tax Act, is the question which confronts us. In meeting the said....
X X X X Extracts X X X X
X X X X Extracts X X X X
....ination of the transaction, as to whether it conforms to the requirements of inter-State commerce or not. Under article 286, clause (1) of the Constitution, two classes of sales are exempted from the imposition of sales tax. The first is a sale which has taken place outside the State. The second is a sale that has taken place "in the course of" the import of the goods into or the export of the goods out of the territory of India. The significance of the words "in the course of" was considered in Bombay Co. v. State [1952] 3 STC 91 (TC); AIR 1952 TC 83 In that case, cashewnuts were purchased locally in Travancore-Cochin for the purpose of exporting them to foreign countries after submitting them to a special treatment in the factory of the purchaser. It was held by the Travancore-Cochin High Court that the purchase was only an integral part of the process of exporting and that the sales in question, though they had been completed before the export actually commenced, fell within the purview of article 286(1)(b) of the Constitution and were beyond the reach of the taxing power of the State. On the scope and meaning of article 286(1)(b), Kunhiraman, J., observed as follows: "The....
X X X X Extracts X X X X
X X X X Extracts X X X X
....at 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....... 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." This Court in Govindarajulu Naidu & Co. v. State of Madras [1952] 3 STC 405; 1952 MWN 878 came to the conclusion that "export" cannot be construed as including purchases prior to the transaction under which the goods are exported. In view of the decision of the Supreme Court, above referred to [State of Kerala v. Bombay Co. [1952] 3 STC 434; (1952) 65 LW 1087], this view is not tenable. Sales and purchases which occasion the export and exempt from taxation by the State. In the instant case, we are very much concerned with the phrase "occasioning the transaction" as contemplated by section 3(a) of the Act. Viewing the transaction in question, bearing in mind this concept incorporated in the provision of....