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PETITIONER: MADRAS MARINE & CO.

       Vs.

RESPONDENT: STATE OF MADRAS

DATE OF JUDGMENT16/07/1986

BENCH: MUKHARJI, SABYASACHI (J) BENCH: MUKHARJI, SABYASACHI (J) PATHAK, R.S.

CITATION:  1986 AIR 1760            1986 SCR  (3) 236  1986 SCC  (3) 552        1986 SCALE  (2)126

ACT:      Tamil Nadu General Sales Tax Act, 1959-Goods-Segregated in bonded ware houses-Sale of goods for consumption on board foreign going ships-Liability for sales tax.      Central Sales  Tax Act 1956, s. 4(2) (a) and (b)-Goods- Segregated in  bonded ware  houses for  delivery to  foreign going vessels-Sale  of such  goods for  consumption on board the ships-Whether  case of export of goods-Whether liable to levy of State Sales Tax.      Constitution  of   India,  Art.   286(1)(b)-Concept  of export-Definition of.

HEADNOTE:      The appellant-company  in Civil  Appeal No.642  of 1974 was doing  the business  as ship  chandler. It  imported the goods from foreign countries and after receipt of the goods, kept  them   in  a   bonded  warehouse  under  the  relevant provisions of  the Customs  Act, 1962.  The  ware-house  was under  dual  control  of  the  Customs  Department  and  the importers like  the appellant so that it could not be opened by one  without the  presence of  the other.  On receipt  of order from  the Captain  of the  Ship requiring ship stores, the appellant  supplied the  goods on  board after observing certain formalities  imposed by  the Customs  Act, the rules and regulations made thereunder.      For  the  Assessment  year  1964-65  a  question  arose whether  Rs.3,51,438.08  which  was  the  taxable  turnover, determined by  the assessing  authority, was  subject to the tax under  the Tamil  Nadu General  Sales Tax Act, 1959. The appellant objected to the assessment on such turnover on the ground  that  the  goods  relating  to  such  turnover  were imported from  abroad, stored  in the customs ware house and were  not   brought  to   the  country  across  the  customs frontiers. The  Sales Tax  Officer assessed the turnover and the   Appellate   Assistant   Commissioner   confirmed   the assessment on the basis that sales were effected 237 within the  State of  Tamil Nadu.  However, the Tribunal, in appeal by  the appellant,  held that  the sales did not take place within  the State  of Tamil  Nadu since  the import of goods in  question had  not become complete and as the goods were sold  to  the  foreign  going  vessels,  the  sales  in

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question could  not be  deemed to  be within  the  State  of Madras. On  revision, the High Court relying on the decision of the  Supreme Court  in the  State of  Madras v. Davar and Co., 24 STC 481, held that the sales took place in the State of Madras  and assessment to tax was valid. The facts in all the other  connected appeals, writ petitions and the special leave petitions  being identical,  a similar question of law also arose in them.      In   appeal    to   the    Supreme   Court    by    the appellant/petitioners, it was contended on their behalf: (i) that the  property  in  the  goods,  did  not  pass  in  the territory of Tamil Nadu and the sales were therefore, in the course of  export because goods were to be on board the ship and were  exported outside  the country  and  could  not  be consumed before  they reached  the high  seas; (ii) that the sale of  goods took  place in the territorial water of India and not  within the  State of  Tamil Nadu;  (iii)  that  the legislative competence of the State of Tamil Nadu as regards levying of  the sales-tax was confined to the territories of the State  as specified  in item No. 7 of the First Schedule to the  Constitution. That  legislative competence  did  not extend to  any territorial  waters simply because these were abutting the land mass of the State of Tamil Nadu; (iv) that the  Sovereignty  over  the  limits  of  territorial  waters extended and  always  extended  to  the  entire  territorial waters  of   India.  The  limits  and  extent  of  the  said territorial waters  had not been altered by any notification of the  Central Government.  The territorial waters extended to a  distance of  12 nautical  miles  from  the  sea  shore adjacent to  the land  mass of the State; and (v) that there was no  definition at  all of  "Customs  Frontiers"  in  the Central Sales  Tax Act, 1956. The definition inserted in the Act in s. 2(ab) by the Amending Act 103 of 1976 must be read as  declaratory   or  explanatory   and  no   questions   of prospective operations  would arise.  On the  other hand, it was argued  on  behalf  of  the  respondent-State  that  the appellant’s godowns  and bonded  ware-houses were within the State  of   Tamil  Nadu.  When  orders  were  received,  the appellants/petitioners supplied  the required  quantity from the stock  either in the godown or in the bonded ware-houses and delivered  these or set these apart in fulfilment of the orders placed  by the  concerned officer of the foreign bond ship and  that at  that time  only  appropriation  was  made towards the  contract of  sale and  such appropriation  took place within  the State of Tamil Nadu. It was, therefore, on such ap- 238 propriation that  the sale  took place; and (ii) that it was not correct  to say  that  the  transactions  of  sale  were completed only  when the masters of the vessels acknowledged delivery of the goods on board the vessels.      Dismissing the Appeals and the Petitions, ^      Held: 1.1 The concept of export in Article 286(1)(b) of the Constitution  postulates the existence of two termini as those between  which the  goods were  intended  to  move  or between which they were intended to be transported and not a mere movement  of goods  out  of  the  country  without  any intention of  their being  landed in  specie in some foreign port. Goods  might be  consumed within  the meaning  of  the Explanation to  Article 286(1)  (a) either by destruction or by way  of  use  depending  on  the  nature  of  the  goods. Therefore, the  sales were  not  sales  "in  the  course  of export" within  the meaning  of Article  286(1) (b) and were not exempt  under that  Article but  they  fell  within  the

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Explanation to Article 286(1) (a). [247C-D; G]      1.2 Mere movement of goods out of the country following a sale  would not  render the  sale, one  in the  course  of export within  Article 286(1)  (b) of  the  Constitution  of India. Before  a sale can be said to be a sale in the course of export,  the existence  of two  termini between which the goods  are   intended  to  move  or  to  be  transported  is necessary. [249F-G]      In the  instant case  the appropriation  of goods  took place in  the State  of  Tamil  Nadu  when  the  goods  were segregated in  the bonded  ware-house to be delivered to the foreign going  vessels. Therefore, under sub-s. (2), sub-cl. (a) and  (b) of s. 4 of the Central Sales Tax Act, 1956, the sale of  goods in  question shall  be deemed  to have  taken place inside  the State  because the  contract  of  sale  of ascertained goods  was made  within the  territory of  Tamil Nadu  and   furthermore  in   case  of  unascertained  goods approrpriation had taken palce in that State in terms of cl. (b) of  sub-s. (2)  of s.  4 of  the Central  Sales Tax Act, 1956. There is no question of sale taking place in course of export or  import under  s. 5.  From that point of view, the amendment introduced  by Act 103 of 1976 by incorporating in cl. (ab) of s. 2 of the Central Sales Tax Act, 1956 does not affect the  position. It  was not  a case of export as there was no  destination for  the goods to a foreign country. The sale was  for the  purpose of consumption on board the ship. It was  not as if only on delivery on board, the vessel that the sale  took place.  The mere  fact that shipping bill was prepared for  sending it  for custom  formalities which were designed to  effectively control  smuggling activities could not 239 determine the  nature of  the transaction for the purpose of sales tax  nor does  the circumstances  that delivery was to the captain  on board the ship within the territorial waters make it  a sale  outside the  State of  Tamil  Nadu.[252E-H; 247A-B]      Burmah Shell  Oil Storage and Distributing Co. of India Ltd., and Anr. v. Commercial Tax Officer & Ors., 11 STC 764; Deputy Commissioner  of Commercial  Taxes  v.  Caltex  India Ltd., Madras,  13 STC  163; The  State of  Madras v. Davar & Co., 24  STC 481; Fairmacs Trading Co. v. The State of Tamil Nadu, 41  STC 157;  Tata Iron  and Steel  Co. Ltd. Bombay v. S.R. Sarkar  & Ors.,  11 STC  655; and The State of Kerala & Ors. v. The Cochin Coal Co., Ltd., 12 STC 1 relied upon.      Fairmacs Trading Co. v. The State of Tamil Nadu, 41 STC 157 and Fairmacs Trading Co. v. The State of Andhra Pradesh, 36 STC 260 approved.      3. Customs barrier does not set a terminal limit to the territory  of  the  State  for  sales  tax  purposes.  Sale, therefore, beyond the customs barrier is still a sale within the State. The amendment introduced in s.2 by the Act 103 of 1976 does not affect the position because the custom station is within the State of Tamil Nadu. [253A-B]      4. In  the facts  and circumstances  of the case, it is not necessary  to  express  any  opinion  on  the  arguments whether introduction  of cl.(ab) of s.2 of the Central Sales Tax Act by Act 103 of 1976 is prospective or not. [253C-D]      Deputy Commissioner  of Commercial Taxes v. Caltx India Ltd., Madras,  13 STC  163; Tata  Iron and  Steel  Co.  Ltd. Bombay v.  S.R. Sarkar  & Ors.,  11 STC  655; Furby  v. Hoey [1947] 1  All England  Report 236; The Central Bank of India v. Their  Workmen [1960]  1 SCR 200; and Chanan Singh & Anr. v. Jai Kaur, [1970] 1 SCR 803 at 804-807 referred to.      R.v. Kent  Justices Ex  Parte LYE  & Ors., [1967] 1 All

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England Report 560 at 564-65 held inapplicable.

JUDGMENT:      CIVIL APPELLATE JURISDICTION: Civil Appeal No. 642 (NT) of 1974. etc.      From the  Judgment and  Order dated  25.4.1973  of  the Madras High Court in T.C. No. 243 of 1969. 240      S.T.  Desai,  Inbarajan  and  A.T.M.  Sampath  for  the Appellant.      M.M. Abdul  Khader, V.C.  Nagarajan and A.V. Rangam for the Respondent.      The Judgment of the Court was delivered by      SABYASACHI MUKHARJI,  J. We  are concerned  with  Civil Appeal No.642(NT)  of 1974,  Civil Appeal  Nos. 1798-1800 of 1981 and  the Writ  Petition No.  196  of  1974  along  with Special Leave  Petitions Nos.  12943-44 of  1985. All  these will have  to be  disposed of  on the  main question  stated hereinafter and  these raise a common question, facts in all these matters are more or less identical except that certain assumptions  of  facts  have  been  made  in  Special  Leave Petitions Nos.  12943-44 of 1985 because in these there were no investigation of facts by the revenue authorities.      The question  involved in  all these,  is, whether  the sales in question were within the State of Tamil Nadu and as such subject  to tax  under the Tamil Nadu General Sales Tax Act, 1959, hereinafter called the ’Act’.      The  dealers  who  are  the  petitioners  in  the  writ petitions and  are the  appellants in  the appeals  and  the petitioners in Special Leave Petitions are dealers in stores and were  doing business  as ship  chandlers in the relevant years. The  appellants/petitioners used  to supply the goods imported as  stores  to  foreign  going  vessels  and  other diplomatic personnel.  The  appellants/petitioners  imported these goods  from foreign  countries. At  the time of import they complied  with the  statutory provisions of the Customs Act and  other enactments  relating to import of goods. They had given  an undertaking  to the  concerned authorities  to supply the imported goods to foreign going vessels and/or to diplomatic personnel  and to  receive the  goods  in  custom bonded ware-house. Under section 59 of the Customs Act, 1962 the importer  of any  dutiable goods  which had been entered for warehousing  and assessed  to duty  under section  17 or section 18  should execute  a bond binding himself for a sum equal to twice the amount of the duty assessed on such goods (a) to  observe all  the provisions of the Act and the rules (b) to  pay on  or before  a date  specified in  a notice of demand all  duties, rent and charges claimable on account of such goods under the Act, and (c) to discharge all penalties incurred for  violation of the provisions of the Customs Act and relevant statutes. For the above 241 purpose, the  Assistant Collector of Customs might permit an importer to enter into a general bond for such amount as the Assistant Collector  of Customs  might approve in respect of the warehousing  of goods  to be  imported by  him within  a specified period.      Sections 60, 61 and 62 of the Customs Act, 1962 provide for ancillary  purposes.  In  substance  these  provide  for control by the proper officer of the goods warehoused. It is not necessary for the determination of the issue involved to deal with other relevant provision of the Customs Act, 1962.      The appellants/petitioners  after receipt  of the goods

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kept  these  in  a  bonded  ware-house  under  the  relevant provisions. The  ware-house was  under dual  control of  the Customs   Department    and   the    importers   like    the appellants/petitioners so that it could not be opened by one without the  presence of the other. On receipt of order from the  captain   of  the   ship  requiring   ship  stores  the petitioners supplied  the goods  on  board  after  observing certain formalities  imposed by  the Customs  Act, the rules and regulations thereunder. These were the broad features of the  way   the  appellants/petitioners  operated.  We  will, however, deal  with the  facts as  found in Civil Appeal No. 642 of 1974.      The case  of the  appellants/petitioners was  that  all these goods were intended for re-export only and were at all relevant time  in a  bonded warehouse.  The delivery  was on board the  ship  to  foreign  going  ship.  The  goods  were consumed only  on the  high seas.  The property in the goods had passed  only after  the goods  had  crossed  the  custom frontiers. The contention was that the property in the goods did not  pass in the territory of Tamil Nadu. The sales were therefore (i)  in the course of export because goods were to be on  board the  ship and were exported outside the country and could not be consumed before they reached the high seas; (ii) the  sale of  the goods  took place  in the territorial waters of  India and  not within  the State  of Tamil  Nadu, "Indian Customs  Water" is  defined in the Customs Act under section 2(28) as follows:           "Indian customs waters" means the waters extending           into the  sea up  to the limit of continguous zone           of  India  under  section  5  of  the  Territorial           Waters,  Continental   Shelf,  Exclusive  Economic           Zones  Act,  1976  and  includes  any  bay,  gulf,           harbour, creek or tidal river." 242      Under article  297  of  the  Constitution,  all  lands, minerals and  other things  of value  underlying  the  ocean within the  territorial waters  or the  continental shelf of India shall  vest in the Union and are held for the purposes of the Union.      It is the contention of the appellants/petitioners that sales there-fore took place outside the State as territorial waters vested  in the  Union Government and not in the State of Tamil  Nadu. The  turnover in  question was  not exigible according to  the appellant/petitioners,  to sales tax under the provisions  of the  Act.  It  is  this  plea  which  the petitioners/appellants sought  to  raise  as  an  additional ground before  the High  Court in  the appeal  out of  which Civil Appeal No. 642 of 1974 arose. But it was not permitted by the High Court.      The Taxing Authorities’ plea on the other hand was that the various  goods sold to foreign bound vessels were within the State  of Tamil  Nadu when  the concerned officer of the foreign bond vessels placed indents for the supply of goods. Further, the  appellants’ godowns and bonded warehouses were within the  State of  Tamil Nadu.  When orders were received the appellants/petitioners  supplied the  required  quantity from the  stock either  in  the  godown  or  in  the  bonded warehouses  and  delivered  these  or  set  these  apart  in fulfilment of  the orders placed by the concerned officer of the foreign  bond ship.  It is  the case  of the respondents that at  that time  only appropriation  was made towards the contract of  sale and  such appropriation  took place within the State  of Tamil  Nadu. It  is the  further case  of  the respondents that  it was on such appropriation that the sale took place.  In the  premises it  was submitted on behalf of

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the    respondents    that    the    contention    of    the appellants/petitioners, that  the transactions  of sale were completed only  when the masters of the vessels acknowledged delivery of  the goods on board the vessels was not correct. It was further urged that it was not correct to contend that the  appellants/petitioners  should  be  treated  as  actual exporters.  The   place  of   delivery   would   not   alter appropriation which had already taken place.      In support  of this  contention, reliance was placed on the decision  of this  Court in the case of Burmah Shell Oil Storage and  Distributing Co.  of India Ltd., and Another v. Commerical Tax Officer and Others., 11 S.T.C. 764.      It is  necessary in  this background,  to  examine  the facts involved  in Civil  Appeal No. 642 of 1974. There, the main question involved 243 was whether  Rs.3,51,438.08 which  was the  taxable turnover determined by the assessing authority was subject to the tax under the said Act. The appellant objected to the assessment on such  turnover on  the ground  that the goods relating to such turnover  were imported  from  abroad,  stored  in  the customs warehouse and were not brought to the country across the customs frontiers. The lower appellate authority allowed some deduction  in the determination of the taxable turnover in respect of sales to local diplomatic corps and determined the  figure   at  Rs.3,51,045.68.  The  Appellate  Assistant Commissioner confirmed  the assessment  on  the  basis  that sales were  effected within  the State  of Tamil Nadu and as such dismissed  the appeal.  There was  an appeal before the Tribunal. The Appellate Assistant Commissioner relied on the decision of  the Madras  High Court  in the  case of  Deputy Commissioner of Commerical Taxes v. Caltex India Ltd Madras, 13 S.T.C.  163. The Tribunal accepted the contentions of the dealer and held that the sales did not take place within the State of  Tamil Nadu.  It was  pointed out  that  there  was significant change in the Customs Act, 1962 from Sea Customs Act, 1978,  and the  Tribunal held  that import  of goods in question had  not become complete and as the goods were sold to the  ocean going vessels, the sales in question could not be deemed  to be within the State of Madras. On revision the High Court  relying on  the decision  of this  Court in  The State of  Madras v.  Davar and  Co., 24 S.T.C. 481 held that the sales  took place  in the State of Madras and assessment to tax  was valid.  Civil Appeal No. 642 of 1974 arises from the said decision.      Civil Appeals  Nos. 1798-1800 of 1981 followed the said decision and  are based  on the  said reasons. These appeals are for  the assessment years 1968-69 and 1970-71. It may be mentioned that  Civil Appeal  No. 642  of 1974 was concerned with the assessment to tax for the year 1964-65.      The writ  petition challenges  the assessment  made for the assessment year 1972-73 where the taxing authorities and the appellate  authorities under  the Act  followed the said decision which  is under  appeal in  Civil Appeal No. 642 of 1974. Special Leave Petition Nos. 12943-44 of 1985 challenge the assessments for 1978-79 and 1979-80 where the High Court took the  view upholding the revenue’s contention that sales were taxable  relying on  the decision in the case of Madras High Court of Fairmacs Trading Company v. The State of Tamil Nadu, 141 S.T.C. 157. 244      As mentioned  hereinbefore, before  the High  Court  in Civil Appeal  No. 642 of 1974, the grounds urged in the writ petition were  sought to  be urged as additional grounds but were not  permitted as  these had  not been taken before the

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taxing authorities.      On  behalf  of  the  appellants/petitioners,  Mr.  S.T. Desai,  learned  counsel,  submitted  that  the  legislative competence of  the State of Tamil Nadu as regards levying of the sales-tax  was confined  to the territories of the State as specified  in item  No. 7  of the  First Schedule  to the Constitution. That  legislative competence did not extend to any territorial  waters simply  because these  were abutting the land  mass of  the State  of Tamil  Nadu. It was further urged that  the Sovereignty  over the  limits of territorial waters  extended   and  always   extended  to   the   entire territorial waters  of India.  The limits  and extent of the said  territorial   waters  had  not  been  altered  by  any notification of  the  Central  Government.  The  territorial waters extended  to a distance of 12 nautical miles from the sea shore  adjacent to  the land  mass of  the State. See in this connection  The Territorial  Waters, Continental Shelf, Exclusive Economic Zone and other Maritime Zones Act, 1976.      It was  further urged  that there  was no definition at all of  ’Customs Frontiers’  in the  Central Sales  Tax Act, 1956. The definition inserted in the Act in section 2(ab) by the Amending  Act 103 of 1976 must be read as declaratory or explanatory and no questions of prospective operations would arise according  to counsel  for the appellants/petitioners. He submitted  that that  definition would also be applicable to sales prior to 1976.      This Court dealt with the history of the definition now appearing in  the relevant sections of the Central Sales Tax Act in  the case  of Tata Iron and Steel Co. Limited, Bombay v. S.R.  Sarkar and Others, 11 S.T.C. 655. In that case this Court was dealing with the relevant provisions in a petition under Artical  32 of the Constitution challenging the demand of the  Sales Tax  Officer of State of West Bengal under the Central Sales  Tax Act,  1956 in respect of certain sales of steel goods.  The petitioner  company in  that case  had its registered office  in Bombay  and its  head sales  office in Calcutta in  the State  of  West  Bengal  and  factories  in Jamshedpur in the State of Bihar. The company was registered as a  ’dealer’ under  the Bihar  Sales Tax  Act and was also registered as ’dealer’ in the State of West Bengal under the Central Sales Tax Act, 1956. For the period of asessment 1st July, 1957  to 31st  March, 1958,  the company submitted its return of taxable sales 245 to the  Commercial Tax  Officer, Lyons  Range, Calcutta. The assessment order  was passed.  It is  not necessary  to deal exhaustively with  the history of the present sections 4 and 5 of  the Central Sales Tax Act which has been dealt with by this Court.  Interpreting the  relevant  provisions  of  the Central Sales Tax Act, 1956, it was observed that the Act by section 3  indicates as  to when a sale or purchase of goods is said  to take  place in the course of inter-State sale or trade or  commerce. Section  4 also  indicates as  to when a sale or purchase takes place outside the State. The majority of the  judges of  this Court  held on  the facts  found  as follows:           "In our  view, therefore,  within  clause  (b)  of           section 3  are included sales in which property in           the goods  passes during the movement of the goods           from one State to another by transfer of documents           of title  thereto: clause  (a) of section 3 covers           sales, other than those included in clause (b), in           which the  movement of  goods from  one  State  to           another is the result of a covenant or incident of           the contract  of sale,  and property  in the goods

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         passes in either State."      Sarkar and  Das Gupta  JJ. in  a separate judgment held that the  documents of  title of  goods sold  could pass the property in  them only  if the  parties had agreed that that would be  the result.  In interpreting whether in the course of import  or export,  sales took  place, the same principle would be applicable.      The correct  position, so  far  as  the  facts  of  the present case are concerned, in our opinion, has been laid in the decision  of Burmah  Shell Oil  Storage and Distributing Co. Of  India Ltd. and Another v. Commercial Tax Officer and Others (supra). This Court observed at page 765 as follows:           "While all  exports involved  a taking  out of the           country, all goods taken out of the country cannot           be said to be exported. The test is that the goods           must have  a foreign destination where they can be           said to  be imported. It matters not that there is           no valuable consideration from the receiver at the           destination end.  If the  goods are  exported  and           there is  sale or  purchase in  the course of that           export and  the sale  or  purchase  occasions  the           export to a 246           foreign  destination,  the  exemption  is  earned.           Purchases made  by philanthropists of goods in the           course of export to foreign countries to alleviate           distress there, may still be exempted, even though           the sending  of the  goods was  not  a  commerical           venture but  a charitable one. The crucial fact is           the sending  of the goods to a foreign destination           where they would be received as imports."      The appellant  in that  case  dealt  in  petroleum  and petroleum products and carried on business at Calcutta. They had maintained  supply depots  at Dum Dum Airport from which aviation  spirit   was  sold   and  delivered   to  aircraft proceeding abroad  for their  consumption. The  question was whether these  supplies to  the aircraft  which proceeded to foreign countries  were liable to sales tax under the Bengal Motor Spirit Sales Taxation Act, 1941. The contention of the appellants in that case was that such sales were made in the course  of  export  of  such  aviation  spirit  out  of  the territory of India that they took place outside the State of West Bengal,  that inasmuch as aviation spirit was delivered for consumption  outside West  Bengal, the  sales could  not fall within the Explanation to clause (1) (a) of article 286 as it then stood. It was held by this Court that in order to exclude the  taxation by  the  State  of  West  Bengal,  the appellants had  to prove  that there  was some  other  State where the  goods could  be said  to have been delivered as a direct result  of the sale for the purpose of consumption in that other  State and  that as  they failed  to do  so,  the aviation spirit  loaded on board an aircraft for consumption though taken  out of India, was not exported since it had no destination, where  it could  be said  to be imported and so long as  it did  not satisfy that test, it could not be said that the  sale was  in the  course of export. It was further held that  aviation spirit  was sold for the use of aircraft and the  sale was not even for the purpose of export and all the elements of sale including delivery and payment of price took place  within the  State of  West Bengal  and the sales were complete  within  the  territory  of  that  State.  The customs  barrier  did  not  set  a  terminal  limit  to  the territory of  West Bengal  for sales  tax purpose.  The sale beyond the  customs barrier  was still a sale in fact in the State of West Bengal.

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    The ratio  of this  decision would be applicable to the facts and  circumstances of  this case. It was rightly urged that the  appropriation of  goods took place in the State of Tamil Nadu  when the  goods were  segregated in  the  bonded warehouse to  be delivered  to the foreign going vessels. It was not a case of export as there was no destination 247 for the  goods to  a foreign  country. The  sale was for the purpose of  consumption on  board the ship. It was not as if only on  delivery on  board the  vessel that  the sale  took place. The  mere fact  that shipping  bill was  prepared for sending it  for custom  formalities which  were designed  to effectively control smuggling activities could not determine the nature  of the  transaction for the purpose of sales tax nor does  the circumstances that delivery was to the captain on board  the ship  within the  territorial waters make it a sale outside the State of Tamil Nadu.      In the  case of  The State  of Kerala and Others v. The Cochin Coal  Company Ltd.,  12 S.T.C.  1, it  was held  that concept of  export in  article 286(1)(b) of the Constitution postulated the  existence of  two termini  as those  between which the  goods were intended to move or between which they were intended  to be  transported and not a mere movement of goods out  of the  country without  any intention  of  their being landed  in specie in some foreign port. Goods might be consumed within  the meaning  of the  Explanation to article 286(1)(a) either  by destruction  or by way of use depending on the  nature of  the goods.  In that  case the respondent- company dealers  in coal  had their  office at  Fort  Cochin which was  formerly within  the State of Madras. The company had imported  and kept  stocks of  ’bunker coal’  at certain places which  at the  relevant period  was also  within  the State of  Madras. Part of the activities of the said company consisted in  the supply  of ’bunker coal’ from their depots in Candle Island for steamers arriving at the port of Cochin in the  State of Travancore-Cochin for the outward voyage of the steamers from the Cochin port. In respect of these sales of coal,  tax was claimed by the Travancore-Cochin State for the years  1951-52 and  1952-53 but  the respondent  claimed exemption under article 286(1)(b) or (2) of the Constitution and also  under a  Notification dated 5th February, 1954 and published in the official Gazette of 16th February, 1954. It was held that the sales of coal by the respondent were sales in the  course of  inter-State trade and fell within the ban of article  286(2), but  the levy  of tax  on such sales had been validated  by the  Sales Tax Laws Validation Act, 1956. It was  further held  that the  sales were not sales ’in the course of  export’ within  the meaning  of article 286(1)(b) and were  therefore not  exempt under  that article but they fell within the Explanation to article 286(1)(a) inasmuch as the coal was delivered in the State of Travancore Cochin and the steamers  were the  actual consumers who were at liberty to  consume   the  coal  whenever  they  desired;  that  the Notification dated 5th February, 1954 was and must be deemed to be one issued in exercise of the power 248 conferred on  the State  Government by  section 6(1)  of the Travancore-Cochin General  Sales Tax  Act, 1125  and as  the transactions  clearly  fell  within  the  Notification,  the respondent would  be entitled  to the  benefit  of  the  tax exemption conferred by the Notification.      The High  Court in  Civil Appeal  No. 642  of 1971  has based its decision on the decision of this Court in State of Madras v Davar and Co. (supra). In that case the assessee, a dealer in  timber, had  imported two  consignments of timber

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from Burma and sold it to buyers in India. The ship carrying the first  consignment arrived at the Madras Harbour on 17th October, 1957.  The assessee obtained moneys from the buyers on 24th  October, 1957,  retired the documents of title from the bank  and handed  over the  documents on the same day to the buyers  to enable  them to  clear the goods. All charges and expenses  by way of import duty, clearance charges etc., were paid  to the  buyers on  behalf of  the  assessee.  The second consignment  reached Madras by ship on 17th December, 1957 and  the assessee obtained on 23rd December, 1957, from the buyers  the value  of the consignment after handing over to the buyers the necessary shipping documents. The assessee claimed that  these sales  were in  the course of import and these were  not liable to tax under the Madras General Sales Tax Act, 1959, as these were covered by article 286(1)(b) of the Constitution.  It was  held that the expression ’customs frontiers’ in  section 5(2)  of the  Central Sales  Tax Act, 1956, did not mean ’customs barrier’. It had to be construed in accordance  with Notification  No. S.R.O.  1683 dated 6th August, 1955, issued by the Central Government under section 3-A of  the Sea Customs Act, 1878 read with the Proclamation of the  President of  India dated 22nd March, 1956. ’Customs frontiers’ meant  the boundaries of the territory, including territorial waters,  of India.  The sales  in this case were effected by  transfer of  documents of  title long after the goods had  crossed the customs frontiers of India; the ships carrying the  goods in  question were  all in the respective harbours within  the State  of Madras  when the  sales  were effected by  the assessee  by transfer of documents of title to the  buyers. The sales were therefore not effected in the course of  import. This  Court, in  construing  the  customs frontiers, referred  to the  extent of  territorial  waters, declaration of  the President  dated 22nd  March, 1956,  the contents of  which were  set out in that decision which need not be repeated here.      We have  noted the  further contentions which were only raised in  the writ  applications and  not raised in Davar’s case. In  our opinion  these further  contentions have  been elaborately discussed in the two 249 decisions, one  of the Andhra Pradesh High Court and another of the  Madras High  Court, which  we shall presently notice but it may be pointed out that there is a difference between the two  High Courts  on the  interpretation whether section 4(2)(a) or  4(2)(b) of the Central Sales Tax Act would apply or not.  It may  be noted that it was observed by Sarkar and Das Gupta  JJ. in Tata Iron and Steel Co. Limited, Bombay v. S.R. Sarkar  and others,  (supra) that  clauses (a) & (b) of section 3  were mutually  exclusive and  sale could not fall under both  the clauses.  We are not here directly concerned with the question whether clauses 4(2)(a) and 4(2)(b) of the Central Sales  Tax Act,  1956 are mutually exclusive or not. We are  concerned with  the question whether either of these was applicable.      In the  case before  the Andhra  Pradesh High  Court in Fairmacs Trading  Company v. The State of Andhra Pradesh, 36 S.T.C. 260, the petitioner imported ship-stores from foreign countries, kept  these in  bonded warehouses  of the customs department without  the levy  of customs  duty and  later on sold and  delivered to ships’ masters for consumption abroad the ship after crossing the port boundaries. On the question whether the sales were outside the State or in the course of export and  therefore not  liable to  tax under  the  Andhra Pradesh General  Sales Tax Act, 1957, it was observed by the Andhra Pradesh  High Court  that the goods were specific and

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ascertained and  were within  the State when the contract of sale took  place and  therefore the  requirements of section 4(2)(a) of  the Central  Sales  Tax  Act,  1956  were  fully satisfied and  the sales  must be  said to  have taken place inside the  State; but  as the  goods sold  were  meant  for consumption during voyage and they had no destination in any foreign country where they could be received as imports, the sales were  not sales  in the  course  of  exports.  It  was further held  that mere movement of goods out of the country following a  sale would  not render  the sale,  one  in  the course  of   export  within   article   286(1)(b)   of   the Constitution of  India. Before  a sale  can be  said to be a sale in  the course  of export, the existence of two termini between which  the goods  are intended  to  move  or  to  be transported is necessary.      The Madras  High Court  in the case of Fairmacs Trading Company v.  The State of Tamil Nadu (supra) was dealing with an assessee,  who was a dealer in ship’s stores and was also doing business as ship chandlers and who imported goods from abroad for  the purpose  of supplying them either to foreign going vessels  or to  diplomatic personnel. These goods were received and kept in the customs bonded 250 ware-house and  were cleared  under the  supervision of  the customs  authorities   whenever  these   were  sold  by  the assessee. In  respect of  supplies of specific goods made to certain ships  located in  the Madras  Harbour, pursuant  to orders placed  by the  Master of  the ship or other officers working in  the ship, the transportation of the goods to the ship was  effected in  such a  manner as  to ensure that the bonded goods, which had not paid any duty, did not enter the local market. The delivery receipt sent along with the goods by the  assessee was  signed by  an officer  of the  ship in token of  having received  the goods  in good condition. The question that  arose for  consideration was whether the sale took place  within the  State of Tamil Nadu and liable to be taxed under  the Tamil  Nadu General Sales Tax Act, 1959. It was  held  (i)  that  there  was  nothing  to  show  in  the communications from  the ship that the goods had necessarily to be supplied only in the ship. It was open to the officers working in  the ship  to come and take delivery of the goods in which  event the  sale would  be a local sale. Therefore, assuming that  the territorial  waters did  not form part of the State  of Tamil  Nadu,  as  there  was  nothing  in  the contemplation of the contracting parties that the goods were to be  moved from  one State to another, it was held that it was not possible to take the view that the sales were inter- State sales;  and (ii)  that the  assessee was  not  selling specific or ascertained goods, because the goods formed part of a  larger stock  within the  bonded  warehouse  and  had, therefore to  be separated  and appropriated to the contract as and  when orders  were placed by the officers of the ship by description.  Therefore, the  sales were  local sales  in view of  the specific  provision of  section 4(2)(b)  of the Central  Sales  Tax  Act,  1956,  read  with  section  2(n), explanation (3)  of the  Act (Tamil  Nadu General  Sales Tax Act, 1959),  and were accordingly taxable under the Act. The Court did  not find  it necessary  to consider  the question whether the  territory covered  by  the  territorial  waters formed part of the State of Tamil Nadu or not.      Attention of  the Madras  High Court  was drawn  to the decision of  Andhra Pradesh  High Court  in Fairmacs Trading Company v.  The State  of Andhra Pradesh (supra). The Madras High Court  did not  examine the  question in  detail in the view it took.

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    In so  far as  the High  Courts of  Andhra Pradesh  and Madras in  the said two decisions held that sales took place within the State, we are in agreement.      On the  aspect of  territorial waters,  we have set out hereinbefore 251 the contention  of the  respondents. But inasmuch as we hold that sales  took place  within State  of  Tamil  Nadu  where appropriation took  place it  is not  necessary to  rest our decision in these matters on this question.      Mr. Desai  drew our  attention to  the observations  of Chief Justice Lord Parker in the case of R. v. Kent Justices Ex Parte  LYE and others, [1967] 1 All England Report 560 at 564-65. But  in this  case it  is not  necessary to consider that aspect in the view we have taken.      In any  event, the  sale took  place when appropriation was made  and appropriation  was made  within the  State  of Tamil Nadu even if the goods were not delivered. See in this connection the  observations of Lord, Goddard, G.J. in Furby v.  Hoey.  [1947]  1  All  England  Report  236.  There  the respondent, an  excise officer,  filled in  and sent  to the appellant  at   his  licensed   premises  a  form  of  order purporting to  order  a  variety  of  liquor,  stating  that delivery  instructions  would  follow.  Subsequently,  after licensing hours  and at  an unlicensed  club, the respondent filled up  a form  of delivery  for one bottle of gin, which was taken  by a  messenger to  the appellant’s premises, and the gin  was brought  back to and paid for by the respondent at the club. The appellant was convicted at quarter sessions of selling  by retail  a bottle  of gin  at the club without having taken out a licence, contrary to section 50(c) of the Finance (1909-10)  Act,  1910  of  U.K.  It  was  held  that appropriation, which  completed the  contract, took place at the licensed  premises of the appellant and not at the club, and, accordingly,  though guilty  of the  offence of selling liquor out  of permitted hours, the appellant was not guilty of selling  liquor on unlicensed premises as charged. In our opinion that  is the  correct position and appropriation was made within the State of Tamil Nadu.      In our  opinion as  the goods  were within the State of Tamil Nadu in case of ascertained goods at the time when the contract of sale was made and in case of unascertained goods at the  time of  their appropriation  to the contract by the seller,-sale must  be deemed to be within the State of Tamil Nadu.      In our  opinion, therefore,  Shri  M.M.  Abdul  Khader, learned counsel  for the  respondents was  right that  under section 2(n) of the Act read with explanation 3, these sales were within the State.      It may be mentioned that there was an amendment in 1976 of the Central Sales Tax Act, 1956 by Act 3 of 1976. By that provision, the 252 following was inserted in section 2 of the Central Sales Tax Act, 1956:           "(ab) "crossing  the customs  frontiers of  India"           meant crossing the limits of the area of a customs           station in  which imported  goods or  export goods           are ordinarily  kept before  clearance by  customs           authorities.           Explanation-For  the   purposes  of  this  clause,           "customs station" and "customs authorities", shall           have the  same meanings  as in  the  Customs  Act,           1962."      Mr. Desai  sought to urge that this was declaratory and

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was valid  for all  the relevant  years. Whether  a law is a declaratory or  not, depends  upon the  Act and the language used. There  was nothing  in the  Act or  object of  the Act which stated  that it was further to amend the Central Sales Tax Act, 1956 that it was declaratory and not prospective in nature.  Our  attention  was  drawn  to  certain  decisions, whether an Act is retrospective and declaratory in operation or prospective would depend upon the purpose of the Act, the object of  the Act  and  the  language  used.  See  in  this connection the  observation in  The Central Bank of India v. Their Workmen,  [1960] 1 SCR 200; Keshavlal Jethalal Shah v. Mohanlal Bhagwandas  & Anr.,  [1968] 3  SCR 623  and  Chanan Singh &  Another v.  Jai Kaur., [19701 1 SCR 803 at 804-807. But that amendent is not relevant in the view we have taken.      The short question, therefore, that arises in all these matters is  whether sale of the goods in question took place within the territory of Tamil Nadu. In these cases sale took place by  appropriation of  goods. Such  appropriation  took place in  bonded  warehouse.  Such  bonded  warehouses  were within the  territory of  State of  Tamil  Nadu.  Therefore, under sub-section  (2), sub-clauses (a) and (b) of section 4 of the  Central Sales-Tax  Act, 1956,  the sale  of goods in question shall  be deemed  to have  taken place  inside  the State because  the contract of sale of ascertained goods was made within  the territory  of Tamil Nadu and furthermore in case of unascertained goods appropriation had taken place in that State  in terms  of clause  (b) of  sub-section (2)  of section 4  of the  Central Sales  Tax Act, 1956. There is no question of  sale taking place in course of export or import under section  5 in  this case.  From that point of view the amendment introduced  by Act 103 of 1976 by incorporating in clause (ab)  of section 2 of the Central Sales Tax Act, 1956 does not  affect the  position. In this connection reference may be made from the observations of this Court in Burmah 253 Shell oil  Storage Ltd., (supra) where it has been held that customs A  barrier does  not set  a terminal  limit  to  the territory  of   the  State  for  sales-tax  purposes.  Sale, therefore, beyond the customs barrier is still a sale within the State.  The amendment introduced in section 2 by the Act 103 of  1976 does not affect the position because the custom station is  within the  State of  Tamil Nadu.  That question might have  been relevant if we were considering the case of sale by  the transfer  of documents of title to the goods as contemplated by  section 5  of the Central Sales-Tax Act. In the premises  we are  unable to accept the contentions urged on behalf  of the  appellants in  the Civil Appeals and also the contentions urged in the Writ Petition.      In the  view we  have taken,  it is  not  necessary  to express our opinion on the arguments whether introduction of clause (ab) of section Z of Central Sales Tax Act by Act 103 of 1976  is prospective  or not. We have, however, noted the submissions. That  question, in  the light  of our aforesaid views, is not material for the present controversy.      In the  premises Civil  Appeal No.  642 of  1974, Civil Appeal Nos.  1798-1800 of  1981 and Writ Petition No. 196 of 1974 are all dismissed with costs.      So far as Special Leave Petitions Nos. 19243-44 of 1985 are concerned,  the same are also dismissed. In these cases, however, the parties will pay and bear their own costs. M.L.A.                      Appeals and Petitions dismissed. 254