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PETITIONER: MOHD.  SERAJUDDIN ETC.

       Vs.

RESPONDENT: STATE OF ORISSA

DATE OF JUDGMENT16/04/1975

BENCH: RAY, A.N. (CJ) BENCH: RAY, A.N. (CJ) KHANNA, HANS RAJ MATHEW, KUTTYIL KURIEN BEG, M. HAMEEDULLAH CHANDRACHUD, Y.V.

CITATION:  1975 AIR 1564            1975 SCR  169  1975 SCC  (2)  47  CITATOR INFO :  F          1975 SC1652  (17,23,24)  R          1976 SC 410  (6)  F          1977 SC 247  (4,5,6,8,9,13,16)  F          1977 SC2008  (4)  RF         1980 SC1468  (4,13,15)  RF         1991 SC1122  (9)

ACT: Constitution-Article  286(1)-Section 5 of Central Sales  Tax Act-Meaning  of in the course of export-Agency of  necessity F.O.B. Contract.

HEADNOTE: The  appellants  entered into two contracts with  the  State Trading  Corporation.   The S.T.C.  entered  into  identical contracts with the foreign buyers for sale of the  identical goods  purchased  by  the S.T.C.  from  the  appellant.  the clauses  as  to  shipment,  sampling,  analysis,  weighment, payment  are  identical in both the contracts.  There  is  a special clause in each one of the contractor providing  that if  the  corresponding contract of S.T.C. with  the  foreign buyer shall stand cancelled for any reason, the contract  of the  S.T.C.  with the appellant will also  stand  cancelled. Likewise, there is a special clause in the con tract between the S.T.C. and the foreign buyer that if for any reason  the contract  between S.T.C. and the appellant stands  cancelled the  contract-  between S.T.C. and the  foreign  buyer  will stand cancelled.  The letter of credit opened by the foreign buyer  was  to be endorsed in favour of the  appellant.  the prices  mentioned in both the contracts are the same with  a difference of on( dollar per ton. The  appellants  contended that the contracts  were  in  the course  of  export, and, therefore, not taxable.   The  High Court came to the conclusion that the sale by the appellants to  the  S.T.C.  was not in the course of  ,export  and  was therefore, exigible to tax under the Central Sales Tax Act. In appeal the appellants contended before this Court:               1.    The contract between the appellant  and               the  S.T.C. is inextricably bound up with  the

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             export.   The sale between the  appellant  and               the  S.T.C. and the export by  Corporation  to               foreign   buyer  constitutes  one   integrated               transaction.               2.    The  S.T.C. has been interposed  by  the               Statute between the appellant and the  foreign               buyer for a limited purpose.  The inextricable               link  is not broken by the S.T.C.  The  S.T.C.               could  not have diverted the goods to a  buyer               in  India without violating Export and  Import               Control Order.               3.    The  contract between the appellant  and               the S.T.C. being on f.o.b. basis the  property               in the goods passed only on shipment when  the               goods  are in the stream of export.  There  is               no sale in the taxable territory.               4.    Even  if it is held that  the  appellant               did  not  have any contract with  the  foreign               buyer  and that the privity is  essential  the               rigid  rule of privity of contract  should  be               relaxed in consideration of equity and justice               and a realistic approach should be adopted. The  respondent contended that the sale by the appellant  to the  S. T. C. was a sale for export but not a sale  in  the course of export. There can be only one sale in the course of export. HELD  by  C. J. (for himself and Mathew,  Beg,  Chandrachud, II). 1.   In the first Travancore Cochin case, the contracts were directly  between the respondents and their foreign  buyers. There was no intermediary between the Indian seller and  the foreign buyer. [175H] 170 2.   In  the  Coffee  Board case this Court  held  that  the introduction  of an intermediary between the seller and  the importing  buyer breaks the link.  This Court has held  that there  must be a single sale which itself causes the  export and there is no room for two or more sales in the course  of export. [173FG&H] 3.   The contention that the contract between the  appellant and  the S.T.C. and the contract between the S.T.C. and  the foreign buyer formed integrated activities in the course  of export  is unsound.  The crucial words in section 5  of  the Central  Sales Tax Act are that a sale or purchase of  goods shall  be deemed to take place in the coursed of the  export of  the  goods only if the sale or purchase  occasions  such export  There are two separate and independent contracts  of sale one between the appellant and the S.T.C. and the  other between the S.T.C. and the foreign buyers within the meaning of ruling in the Coffee Board case and the Benani  Brother’s case. [180FGH] 4.   The  word "occasion" in section 5 means  the  immediate and direct cause.             [181B] 5.   The  appellant was under no contractual  obligation  to the foreign buyer either directly or indirectly.  The rights of   the  appellant  were  against  the  S.T.C.   Similarly, obligations  of the appellant were to the S.T.C.  The  price was  different in the two contracts.  This  difference  also dissociates the two contracts from each other. [181EFH] 6.  The S.T.C.is not an agent of necessity.  The  agency  of necessity  arises where the person authorised to act  as  an agent  for another without any regard to the consent of  the principal, act in certain circumstances and the law creates an  agency  of necessity, e.g. a wife becomes  an  agent  of necessity.   In the present case, there is no principal  and

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agent relationship between the appellant and the S.T.C.  The relationship is between the two principals. [182CDE] 7.   In  the  present  case  mention  of  f.o.b.  price   in contracts  between  the appellant and the  S.T.C.  does  not render  the  contracts with the foreign  buyers  f.o.b.  The S.T.C.  entered into independent contracts with the  foreign buyers on f.o.b. basis.  The appellants were required  under the contracts between the appellant and the S.T.C. to  bring the  goods to the ship named by the S.T.C. The  shipment  of the  goods by the S.T.C. to the foreign buyer is the  f.o.b. contract  to  which  the appellants  are  not  the  parties. [184DE] 8.   The  fact that the export can be made only through  the S.T.C. does not have the effect of making the appellants the exporters  where  there  is  direct  contract  between   the Corporation and the foreign buyer. [185A] Dismissing the appeals held, that sale was not in the course of export and was exigible to the Central Sales Tax. [185C] (Per Khanna, J. dissenting) Allowing the Appeals, Held (a)  It  was laid down in the Travancore Cochin case that  a sale  in the course of export predicates action between  the sale and the export, the two activities being so  integrated that  the connection between the two cannot  be  voluntarily interrupted  without  a  breach  of  the  contract  or   the compulsion  arising  from  the nature  of  the  transaction. There must be in intention on the part of both the buyer and seller to export, there must be an obligation to export  and there must be an actual export. [190BC] (b)  The  sale  of  mineral ores for  export  was  canalised through  S.T.C.  in  pursuance of an order  made  under  the Imports  and Exports Control Act, 1947.  Section 3  of  that Act empowered the Central Government to prohibit, restrict 171 or  otherwise control imports or exports.  Under the  powers conferred by that section the Central Government issued  the Exports  Control  Order,  1958.   Clause  3  of  that  Order provided  that  no  person shall export  any  goods  of  the description  specified  in Schedule I except  under  and  in accordance with a licence granted by the Central Government. Chrome  Ore  and Concentrates were specified  in  the  first Schedule. [193ABC] (c)  The   agreement  between  the  appellant   and   S.T.C. incorporated  die  terms and conditions which  were  settled between the appellant and the foreign buyer.  IL was  agreed that the contract between the appellant and the S.T.C. would be  deemed  cancelled if for any reason  the  foreign  buyer cancelled the corresponding purchase contract of the  S.T.C. The  agreement  between  the appellant  and  S.T.C.  clearly contemplated the export of Chrome Concentrates.  The name of the ship on which the Chrome Concentrates were to be  loaded for  the purpose of export was also given in the  agreement. The price to be paid by S.T.C. to the appellant was fixed in terms  of  dollars mainly because the price to  be  ‘charged from  the foreign buyer was fixed in terms of dollars.   The amount  that  the S.T.C. was to get in the  course  of  this transaction was I Dollar per ton.  The appellant was to  get 90 per cent against shipping documents and the remaining  10 per cent after destinational weight and analysis. [193EH] (d) The export of the Chrome Concentrates was occasioned  by one  transaction.  The parties to that transaction were  the appellant, the S.T.C. and the foreign buyer.  The S.T.C. was brought  into the picture as an intermediary because of  the legal  requirement according to which the export  of  Chrome Concentrates   was  to  be  cancelled  through  S.T.C.   The

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agreements  were  part of one integrated  transaction  which resulted  in the export of the goods.   The  interconnection between  the  agreement was so intimate that  one  agreement could  not  stand  without the other.   It  was  accordingly provided   that   the   cancellation   of   one    agreement automatically  resulted  in the cancellation  of  the  other agreement. [194A to C] (e)  The observations of the Coffee Board’s case that  there was  no,  room for 2 or more sales in the course  of  export were  made  in the context of 2  independent  sales.   Those observations  could  not  be invoked in the  sale  like  the present where two sales are so interconnected as to be  part of one integrated transaction.  In the Coffee Board’s  case, itself,  the  discussion  about the  absence  of  connection between  the two sales would have been unnecessary if  there was  intention to lay down an absolute rule that once  there are  two  contracts  the  court  need  not  look  to   other circumstances.  The Coffee Board’s case which was decided by a  Constitution Bench could not set at naught the rule  laid down  in  a  series of  earlier  decisions  by  Constitution Benches    and    in    fact   it    did    not    do    so. [194F. 195BC] (f)  The  S.T.C. could not have diverted the goods  supplied by the appellant for a purpose other than the export to  the foreign buyer. [196F] (g)  The  position of S.T.C. was not of a purchaser  in  the ordinary sense.  S.T.C. was not entitled to get profits  and was not liable to bear losses resulting from fluctuations in the  market  rate.  The S.T.C. came into the  picture  as  a statutory intermediary and all that the S.T.C. was  entitled in the bargain was a commission of I Dollar. [196G & 197 A & C] (h)  In Khosla’s case there were two contracts.  Despite the existence of two contracts this Court held that the contract in question was exempt from payment of  tax, as being in the course of import. [198A.  D&E] (i)  The  contract of sale between the appellant and  S.T.C. was on F.O.B. terms.     [198H]                            ORDER In accordance with the judgment of the majority the  appeals were dismissed. 172

JUDGMENT: CIVIL APPELLATE JURISDICTION : Civil Appeals Nos. 697 to 706 of 1973 and 2063 to 2082 of 1974. Appeals by Special Leave from the Judgment & Order dated the 17th  September, 1973 of the Orissa High Court in S.  J.  C. Nos. 25 to 44 of 1971. Govind  Das,  P. H. Parekh, and Mrs. S.  Bhandare,  for  the appellants (in C.As. Nos. 697-706/73) B.   Sen, O. C. Mathur and D. N. Mishra, for the  appellants (In C.As. 2063-2082/74) G.   L. Sanghi and Bishamber Lal, for intervener, (Misri Lal Jain) F.   S.  Nariman, Additional Solicitor General of India,  F. S. Desai, P.   H.  Parekh, Mrs. S. Bhandare and Manju Jatley, for  the applicant/ Intervener (M.  M. T. C.) S.   T.  Desai, M. C. Bhandare and B. Parthasarthy  for  the respondents (In all the appeals) The Judgment of the Court was delivered by Ray, C. J. H.  R. Khanna, J. gave a dissenting Opinion.

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RAY, C. J.-These Appeals by special leave raise the question whether the agreements between the appellants and the  State Trading   Corporation  (hereinafter  referred  to   as   the Corporation) were in course of export, and therefore, immune from liability to the Central Sales Tax Act. The  appellant  entered  into four  contracts  for  sale  of mineral  ore.  Two of these contracts were with the  foreign buyer  M/s  Associated Metal and Minerals  Corporation,  New York.   The other two contracts were with the State  Trading Corporation.   It  is  common ground  that  the  Corporation entered  into contracts with foreign buyers for sale of  the identical goods purchased by the Corporation from the appel- lant. The present appeal relates to the two contracts between  the appellant  and the Corporation.  The High Court came to  the conclusion  that  the  appellant’s two  contracts  with  the Corporation are exigible to tax under the Central Sales  Tax Act, 1956. Section 5(1) of the Central Sales Tax Act, 1956  hereinafter referred  to  as  the Act contains  the  following  relevant provision :-               "A  sale or purchase of goods shall be  deemed               to  take place in the course of the export  of               the  goods out of the territory of India  only               if the sale or purchase either occasions  such               export  or  is  effected  by  a  transfer   of               documents  of  title to the  goods  after  the               goods  have crossed the customs  frontiers  of               India". 173 Counsel  for  the  appellant  contended  as  follows.    The contract  in  each  case  between  the  appellant  and   the Corporation  is inextricably bound up with the export.   The sale  between  the  appellant and the  Corporation  and  the export  by the Corporation to foreign buyer constituted  one integrated  transaction.  Second, the Corporation  has  been interposed by the statute for a limited purpose between  the appellant  and  the foreign buyer.  Export  cannot  be  made except  by  the Corporation.  The inextricable link  is  not broken  by the Corporation.  The Corporation could not  have diverted  the  goods to a buyer in India  without  violating export and import control order.  Therefore, the sale is  in the  course  of  export.  Third, the  contract  between  the appellant  and  the Corporation being on F.O.B.  basis,  the property in the goods passed only on shipment when the goods are  in the stream of export.  There is thus no sale in  the taxable  territory.   Fourth, even if it is  held  that  the appellant  did not have any contract with the foreign  buyer and  that privity is essential the rigid rule of privity  of contract  should be relaxed in consideration of  equity  and justice  and  a realistic approach should be  adopted.   The nature of entering into contracts through the channel of the Corporation   raises  in  reality  a  presumption   of   the Corporation   being  an  agent  of  the  appellant  in   the integrated transaction. Counsel  on behalf of the appellant relied on some terms  of contract  in  support of the contention  that  the  contract between  the appellant and the Corporation and the  contract between  the Corporation with the foreign buyer  formed  one integrated transaction.  The clauses in the contract between the  appellant  and  the  Corporation  relied  upon  by  the appellant  are  terms  as  to  price,  shipment,   sampling, analysis weighing, payment and a special clause.  The  price is  expressed  in U. S. dollars per long ton,  F.O.B.  Ocean liner  vessel, Calcutta.  The term for shipment is that  the

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material will be ready in Calcutta harbour for shipment  per steamer as Leneverett or Substitute schedule to load  during December,  1960.  The clause as to sampling and analysis  is final  sampling and moisture determination will be  made  at the  time of unloading at the port of discharge by Far  East Superintendence  Company  or  U. S.  Consultants  and  their certificate  will  be final and binding on  both  buyer  and seller.   The  clause  as to weighing says  that  the  final weights as ascertained by Far East Superintendence Co.  Ltd. or  U. S. Consultants at the port of discharge is final  and binding on both parties. The  terms  as  to payment are these. 90  per  cent  against shipping documents as described in buyer corresponding  sale contract.  Buyer will assign the relevant foreign letter  of credit which is to be opened in their name by their  foreign buyer, Messrs.  Associated Metals and Minerals  Corporation, on  receipt from the sellers of a Bank draft for  difference between  buyers F.O.B. purchase value and F.O.B sale  value, i.e. $ 1.00 (Rs. 4.75) per try long ton for a Bank guarantee from  a  Scheduled Bank guaranteeing that sellers  will  pay buyers  F.O.B. purchase value as shown in the  contract  and buyers  F.O.B. sale value as shown in the foreign letter  of credit  and the buyers will endorse the bills of lading  and deliver the same to sellers to negotiate against the above 174 mentioned  letter  of credit.  Balance  after  destinational weight and analysis on   the basis of documents mentioned in the Corporation’s corresponding    sale contract with buyer. If  the balance 10 per cent is insufficient to cover   short fall  in weight and analysis at destination or  any  penalty imposed  by the Corporation’s foreign buyer  the  additional amount shall be payable by sellers to buyers on demand. The special clause relied on by the appellant is as follows               (i)   Unless   otherwise  agreed   upon,   the               sellers  agree  that  the  contract  shall  be               deemed   as  cancelled  if  for  any   reasons               whatsoever M/s Associated Metals and  Minerals               Corporation,   cancel   their    corresponding               purchase  contract with the buyers for  supply               of chrome ore.               (ii)  The  terms and conditions of the  buyers               corresponding    sale   contract   with    M/s               Associated Metals & Minerals Corporation  will               apply to this contract also except to the  ex-               tent specified in this purchase contract.               (iii) A true copy of buyers sale contract with               M/s  Associated Metals & Minerals  Corporation               is attached." On  behalf  of the appellant it is said that  the  commodity could  not be exported directly by the appellant in view  of the restrictions imposed by law.  The appellant entered into negotiations  with  foreign purchasers and settled  all  the conditions  of  the contract.  The  Corporation,  thereafter entered into an FOB contract with the appellant and with the foreign  buyer  on  identical  terms.   The  Corporation  is interested only in the commission of one dollar per long ton from  the appellant.  All necessary steps including  payment of  customs duty for the shipment and export have been  done by  the appellant.  The contract between the  appellant  and the  Corporation is on FOB basis and the property  in  goods passes only on shipment when the goods are in the course  of export. The   appellant  relied  on  the  decisions  in   State   of Travancore-Cochin  &  Ors.  v. The Bombay  Co.  Ltd.  (1952) S.C.R.  1112  and  State of  Travancore-Cochin  &  Ors.,  v.

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Shanmugha  Cashew  Nut Factory & Ors. (1954)  S.C.R.  53  in support of two propositions extracted from those  decisions. First,  a  sale by export involves a  series  of  integrated activities  commencing  from the agreement of  sale  with  a foreign buyer and ending with the delivery of the goods to a common  carrier for transport out of the country by land  or sea.   Such  a sale cannot be dissociated  from  the  export without  which  it cannot be effectuated, and the  sale  and resultant  export  from parts of a single  transaction.   Of these two integrated activities which together constitute an export  sale whichever first occurs can well be regarded  as taking  place  in the course of the other.   Even  in  cases where the property in the goods passed to the foreign buyers and  the sales were thus completed within the  State  before the goods commenced their journey from the State, the  sales must be regarded as having taken place in the course of  the export,  and,  therefore, exempt under Article  286(1)  (b). Second, the word "course" denotes movement from one point to another, and the expression "in                             175 the  course  of" not only implies a period  of  time  during which  the  movement is in progress but  also  postulates  a connected  relation.  A sale in the course of export out  of the  country should be understood as meaning a  sale  taking place not only during the activities directed to the end  of exportation of the goods out of the country but also as part of or connected with such activities. The  two  Travancore-Cochin  decisions  relied  on  by   the appellant  are on interpretation of the word "in the  course of  the export of the goods out of the territory  of  India" occurring in Article 286(1) (b) of the Constitution, Article 286  (1)  states  that no law of a  State  shall  impose  or authorise the imposition of a tax on the sale or purchase of goods  where such sale or purchase takes place  (a)  outside the  State or (b) in the course of the import of  the  goods out of territory of India.  Prior to the Constitution  Sixth Amendment Act, 1956 there was an explanation for the purpose of  sub-clause  (a)  of  Article  286  (1).   There  was  no definition  of the expression "in the course of  import"  or "in  the  course of export" before  the  Constitution  Sixth Amendment  Act, 1956.  By the Constitution  Sixth  Amendment Act, 1956 Parliament was given power to formulate principles for determining when a sale or purchase of goods takes place in  any of the ways mentioned in clause (1) of Article  286. Section  5  of  the  Central  Sales  Tax  Act  has  given  a legislative  meaning  to the expression "in  the  course  of export" and "in the course of import". In the first Travancore-Cochin case (supra) the  respondents claimed  exemption  from  assessment  in  respect  of  sales affected  by them to foreign buyers on CIF or FOB  terms  on the  ground that such sales took place in the course of  the export of the goods out of the territory of India within the meaning  of  Article 286(1) (b) of the  Constitution.   This Court  held  that the sales which occasioned the  export  in each  case  fell  within the scope of  the  exemption  under Article  286(1) (b).  These sales were found to be a  series of  integrated activities commencing from the  agreement  of sale with the foreign buyer and ending with the delivery  of ,he  goods  to  a common carrier for transport  out  of  the country   by  land  or  sea.   These  sales  could  not   be dissociated from the export without which these could not be effectuated.   The sale and the resultant export from  parts of  the single transaction.  Any such integrated  activities which together constitute an. export sale, whichever  occurs first,  can well be regarded as taking in the course of  the

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other.   On  these reasoning this Court held  in  the  first Travancore-Cochin case (supra) that assuming that the  sales to the foreign buyers were complete within the State  before the   goods   commenced  their  journey,  the   sales   must nevertheless be regarded as having taken place in the course of the export. It  is  noticeable  in  the  first  Travancore-Cochin  case, (supra)  that  the  contracts  were  directly  between   the respondents   and  their  foreign  buyers.   There  was   no intermediary  between  the  Indian seller  and  the  foreign buyer.   The  sale and the export become integrated  in  one transaction. 176 In the second Travancore-Cochin case (supra) the respondents imported  raw  cashew  nuts from  aboard,  and  neighbouring districts in the State of Madras.  The respondents converted the same by certain process into edible kernels and exported the  kernels to foreign countries.  The respondents  claimed exemption  Article  286(1)  (b) in respect  of  purchase  of cashew nuts.  The three propositions laid down in the second Travancore  Cochin case (supra) are these.  First, sales  by export  and  purchases by import fall within  the  exemption under Article 286(1) (b).  Second, purchases in the State by the  exporter for the purpose of export as well as sales  in the  State by the importer after the goods have crossed  the customs barrier are not within the exemption.  Third,  sales in  the  State by the exporter or importer  by  transfer  of shipping  documents while the goods are beyond  the  customs barrier  are within the exemption, assuming that  the  State power of taxation extends to such transactions. The  second  Travancore-Cochin  case  (supra)  was  on   the question  whether two categories of sale or  purchase  would fall within the scope of exemption under Article 286(1) (b). The  first category was the last purchase of goods  made  by the exporter for the purpose of exporting them to  implement orders already received from a foreign buyer or expected  to be  received subsequently in the course of business and  the first  sale  by the importer to fulfil  orders  pursuant  to which  the  goods  were imported or orders  expected  to  be received after the import.  The second category comprised of sales  or  purchases of goods effected within the  State  by transfer  of shipping documents while the goods are  in  the course of transit.  As to the first mentioned category  this Court in the second Travancore-Cochin case (supra) said that the  exemption  under  Article 286(1) (b) was  for  sale  or purchase  of goods taking place in the course of the  import of  the  goods "into" or export of the goods  "out  of"  the territory of India.  The reference to the "goods" and to the "territory"  of India make it clear that the  words  "export out of" and, ",import into" mean the exportation out of  the country and importation into the country respectively.   The word "course" denotes movement from one point to another and the expression "in the course" not only implies a period  of time  during  which  the  movement  is  in  progress,,   but postulates  also a connected relation.  On  this,  reasoning this Court held that a sale in the course of export means  a sale taking place not only during the activities directed to the end of exportation of the goods. out of the country  but also  as  part of or connected with  such  activities.   The purchase for the purpose of export was held in that decision not too be connected or integrated activities-. In the second Travancore-Cochin case (supra) the import from Africa  fell  into two categories.  The first  consisted  of purchases  made  through intermediaries  called  the  Bombay Party,  who  acted as agents for  the  respondents  charging

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commission.   The  Bombay Party arranged  for  purchases  on behalf  of  the  respondents and obtained  delivery  or  the Shipping  documents  on payment at Bombay.   In  the  second category       177 the Bombay Party indented the goods on their own account and sold  the goods as principals to the respondents  and  other customers.  The shipping documents were made out in the name of the Bombay Party as consignees.  This Court held that  in respect of the purchases under the first category the Bombay Party  acted  marely  as agents  of  the  respondents,  and, therefore, there was privity between the respondent and  the African  sellers.   With regard to the second  category  the Bombay Party were the purchasers and they sold the goods  as principals  to  the  respondents and there  was  no  privity between the respondents and the African sellers. The principal decisions of this Court on the  interpretation of section 5 (1) of the Act are Bengorm Nilgiri  Plantations Company Coonoor & Ors. v. Sales Tax Officer Special  Circle, Ernakulam  &  Ors.  [1964] 7 S. C.  R.  706,  Coffee  Board, Bangalore  v. Joint Commercial Tax Officer Madras (1970),  3 S.  C. R. 147 and the recent decision in M/s.  Binani  Bros. (P) Ltd., v. Union of India & Ors. (1974) 1 S.C.C. 459. In the Nilgiri Plantations Case (supra) the appellants  were sellers  of  tea and their purchasers were local  agents  of foreign  buyers.  The sale,,; were by public auction.   This Court held that a transaction of sale which is a preliminary to  export of the commodity sold may be regarded as  a  sale for export, but is not necessarily to be regarded as one  in the  course of export unless the sale occasions export.   It was  said that to occasion export there must exists  such  a bond between the contract of sale and the actual exportation that  each  link  is inextricably  connected  with  the  one immediately preceding it.  Without such a bond a transaction of  sale cannot be called a sale in the course of export  of goods out of the territory of India.  There may be a variety of  transactions  if the sale of commodity  is  followed  by export.   Foreign  purchasers  may  purchase  through  their agents within the territory of India.  Such a transaction is not  in  the course of export because the  seller  does  not export  the  goods and it is not his concern as to  how  the purchaser  deals  with  the  goods.  There  may  be  also  a transaction  under a contract of sale With a  foreign  buyer under which the goods may under the contract be delivered by the seller to a common carrier for transporting them to  the purchaser.  Such a sale may be dissociated from the  export. A  sale  in  the course of export  predicates  a  connection between the sale and export.  No single test can be laid  as decisive for determining that  question.   Each  case   must depend upon its facts.  But it does not mean            that distinction  between transactions which may be called  sales for  export and sales in the course of export is  not  real. Where  the sale is effected by the seller and the seller  is not connected with the export which actually takes place, it is  a  sale for export.  Where the export is the  result  of sale,  the export being inextricably linked up with sale  so that the bond cannot be dissociated without a breach of  the obligations   arising  by  statute,  contract,   or   mutual understanding between the parties arising from the nature of the transaction the sale is in the course of export.  In the Nilgiri Plantations case (supra) this 178 Court  found that the sales by the appellants were  intended to  be complete without the export and as such it could  not be  said that the sales occasioned export.  The  sales  were

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for export and not in the course of export. In  the  Coffee Board case (supra) the Coffee  Board  framed rules  for  sale of coffee to  registered  exporters.   Only dealers  who  registered themselves as exporters  of  coffee with  the Coffee Board and who held permits from  the  Chief Coffee  Marketing Officer in that behalf were  permitted  to participate  at the auction.  After the bid the price  would be  paid  in  accordance with the conditions.   One  of  the conditions called ,export guarantee’ provided that it was an essential  condition  of the auction that  the  coffee  sold thereat "shall be exported to the destination stipulated  in the  catelogue  of  lots, or to any  other  foreign  country outside  India  as  may  be approved  by  the  Chief  Coffee Marketing   Officer  and  that  it  shall  not   under   any circumstances  be diverted to another destination, sold,  or be  disposed  or  otherwise  released  in  India".   Another condition  provided that "if the buyer fails or  neglect  to export  the coffee within the prescribed time, he  would  be liable  to pay a penally".  Another condition provided  that if the buyer made any default to export the coffee, it would be  lawful  for the Chief Coffee Marketing  Officer  without reference  to the buyer to seize the unexported  coffee  and deal  with  the  same as if it was part and  parcel  of  the coffee held by the board in their Pool Stock. The  Coffee  Board contended that the auctions were  in  the course  of export, because the sales  themselves  occasioned the export of coffee.  The Revenue contended that the  sales were not bound up with the export.  This Court held that the phrase "sale in the course of export" authorised not only  a sale  and an actual export but that the sale must be a  part and  parcel  of  the export.  The  word  "occasion"  in  the context of sale or purchase was held to mean to cause export or to be the immediate cause of export.  The introduction of an  intermediary between the seller and the importing  buyer was  held  to  break the link.  There was one  sale  to  the intermediary  and another to the importer.  The  first  sale was  not  in the course of export because the  export  began from the intermediary and ended with the importer. The ruling of this Court in the Coffee Board case (supra) is that  there  must be a single sale which itself  causes  the export  and that there is no room for two or more  sales  in the  course of export. Though the sales by the Coffee  Board were sales for export, they were not sales in the course  of export.   They  were  two independent sales  in  the  export programme.   The  first sale was a sale between  the  Coffee Board as seller to the export promoter.  Then there was  the sale by the export promoter to a foreign buyer.  It was  the second  sale  which was in the course of  export  since  the second sale caused the movement of goods between an exporter and  an  importer.  In the, Coffee Board  case  (supra)  the rules compelling export meant compelling persons who  bought on their own to export in their own                             179 turn  by  entering  into another  agreement  for  sale.   An essential condition as to export of coffee purchased at  the auction was held not to amount to turn the transaction  into a  sale in the course of export.  The reason given was  that if the registered exporter who was the bidder at the auction did  not export he would commit a default of conditions  No. 30  and  31  and be liable to penalty  and  seizure  of  the coffee. In  the  Coffee Board case (supra) the phrase "sale  in  the course of export" was held, to comprise of three essentials. First, there must be a sale.  Second, goods must actually be exported.  Third, the sale must be a part and parcel of  the

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export.  The propositions laid down in the Coffee Board case (supra)  are  these : The sale which is to  be  regarded  as exempt is a sale which causes the export to take place or is the  immediate cause of the export.  To establish  export  a person  exporting  and  a  person  importing  are  necessary elements   and  the  course  of  export  is  between   them. Introduction of a third party dealing independently with the seller  on the one hand and with the importer on  the  other breaks the link between the two for then there are two sales one to the intermediary and the other to the importer.   The first sale is not in the course of export because the export commences  with the intermediary.  The tests are that  there must  be a single sale which itself causes the export or  is in the progress or process or export.  There is no room  for two  or more sales in the course of export.  The  only  sale which  can  be said to cause the export is  the  sale  which itself  results  in  the  movement of  the  goods  from  the exporter to the importer. The  Coffee  Board case (supra) discussed  all  the  earlier decisions  some of which were on the meaning of  the  phrase "in  the course of export" occurring in  Article  286(1)(b). In  the Coffee Board case (supra) at page 161 of the  Report it is said that the same meaning must obviously be given  to the  phrase  "in  the course of export"  or  to  the  phrase "occasions the export".  One of the decisions discussed  was K.  G.  Khosla & Co. v. Deputy  Commissioner  of  Commercial Taxes  (1966)  3  S.C.R. 352.  In K. G. Khosla  &  Co.  case (supra)  Khosla  and Company entered into contract  of  sale with  the  Director General of Supplies  and  Disposals  for supply  of axle bodies manufactured by the principal of  the Khosla & Co. in Belgium.  The goods were to be inspected  by the  Director General of Supplies and Disposals in  Belgium. Under  the  contract  of sale the goods were  liable  to  be rejected  after a further inspection by the  buyer  Director General of Supplies and Disposals in India.  The goods  were imported  into  our  country and supplied to  the  buyer  at Peramber  and  Mysore.   The  contract  between  Khosla  and Company  and Director General of Supplies and Disposals  was held by this Court to be in the course of import.  The  term as to rejection of goods as a result of inspection in  India indicated that there was no completed sale in Belgium  under the contract. In  the recent decision in Binani Brothers case (supra)  the petitioner  was  a  supplier  to  the  Director  General  of Supplies and 180 Disposals.   The  petitioner  obtained  import  licences  to supply  nonferrous metals.  The Government agreed to pay  to the petitioner sales tax under the Central Sales Tax Act  or West Bengal Sales Tax Act, whichever was applicable in terms of the contract.  After the decision of this Court in K.  G. Khosla & Co. case (supra) the Revenue Authorities issued  an order directing that sales tax should not be      allowed in respect of supply of stores which have been imported against import  licences for supplies under contracts Placed by  the Director General of Supplies and Disposals.  On the basis of that  direction the Government deducted in respect of  sales tax  certain  sums of money which were pending  payment  and also  threatened to recover a large sum of money  which  had been paid as sales tax in respect of supplies already  made. This  Court discussed the Travancore & Cochin cases  (supra) and  the  Nilgiri Plantations Company case (supra)  and  the Coffee  Board case   (supra).  Mathew, J. speaking  for  the Court  said that there was no obligation under the  contract on  the  part  of  the  Director  General  of  Supplies  and

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Disposals to procure import licences for the petitioner.  It war,  the  obligation  of the petitioner  to  obtain  import licence.  Even if the    contracts  envisaged the import  of goods  and their supply to the Director General of  Supplies and  Disposals  from out of the goods imported  it  did  not follow  that  the  movement of the goods in  the  course  of import was occasioned by the contracts of sales between  the petitioner   and  the  Director  General  of  Supplies   and Disposals.  Khosla & Co. case (supra) was discussed and this Court  said  that  there was no completed  sale  in  Belgium because under the contract the Director General of  Supplies and  Disposals  reserved the final right of  inspection  and rejection  of goods on their arrival in India.  The  crucial test  which  was laid down in the Nilgiri  Plantations  case (supra)  as  well as Coffee Board case  (supra)  is  whether there were independent transactions or only one  transaction which occasioned the movement      of   the  goods  in   the course of export. The contention on behalf of the appellant that the  contract between  the appellant and the Corporation and the  contract between  the  Corporation  and  the  foreign  buyer   formed integrated  activities in the coarse of export  is  unsound. The crucial words in the section are that a sale or purchase of goods shall be deemed to take place in the course of  the export  of the goods only if the sale or purchase  occasions such  export.  The various decisions to which reference  has been  made  illustrate the ascertainment of  the  preeminent question as to which is the sale or purchase which occasions the  export.  The Coffee Board case as well as the  case  of Binani Bros. (supra) clearly indicates that the  distinction between  sales for export and sales in the course of  export is never to be lost sight of.  The features which point with unerring accuracy to the contract between the appellant  and the  Corporation  on the one hand and the  contract  between Corporation  and  the  foreign buyer on  the  other  as  two separate and independent contracts or sale within the ruling in  the  Coffee Board case (supra) and the  Binani  Brothers case,  are these.  The Corporation entered on the scene  and entered  into  a direct contract with the foreign  buyer  to export the goods.  The Corporation alone agreed to sell  the goods                             181 -to the foreign buyer.  The Corporation was the exporter  of the  goods  There  was no privity of  contract  between  the appellant and the foreign buyer.  The privity of contract is between   the  Corporation  and  the  foreign  buyer.    The immediate cause of the movement of goods and ,export   was the contract between the foreign buyer who was the  importer and the Corporation who was the exporter and shipper of  the goods.    All  relevant  documents were in the name  of  the Corporation  whose contract of sale was the occasion of  the export.  The expression "occasions" in section 5 of the  Act means the immediate and direct cause.  But for the  contract between the Corporation and the foreign buyer, there was  no occasion  for export.  Therefore, the export was  occasioned by  the  contract of sale between the  Corporation  and  the foreign  buyer and not by the contract of sale  between  the Corporation and the appellant. The  appellant sold the goods directly to  the  Corporation. The  ,circumstance that the appellant did so to  facilitate the performance of the contract between the Corporation  and the foreign buyer on terms which were similar did not  make the contract between the ,appellant and the Corporation  the immediate cause of the export.  The Corporation in regard to its contract with the foreign buyer entered into a  contract

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with  the appellant to procure the goods.   Such contracts for  procurement of goods for export are described  in  com- mercial parlance as back to back contracts.  In export trade it  is  not  ,unnatural to find a string  of  contracts  for export  of goods.  It is only the contract  which  occasions the  export  of goods which will be entitled  to  exemption. The  appellant  was under no contractual obligation  to  the foreign buyer either directly or indirectly.  The rights  of the appellants were against the Corporation.  Similarly  the obligations  of the appellant were to the Corporation.   The foreign  buyer  could  not  ,claim  any  right  against  the appellant  nor did the appellant have any obligation to  the foreign  buyer.   All  acts done by the  appellant  were  in performance of the appellants obligation under the  contract with   the  Corporation  and  not  in  performance  of   the obligations of the Corporation to the foreign buyer. The  expression "sale" in section 5 of the Act has the  same meaning as in Sale of Goods Act.  String contracts or  chain contracts  are  separate  transactions even  when  there  is similarity relating to quantity, quality of goods, shipment, sampling  and analysis. weighment and force majeure etc.  or other  similar  terms.   A contract of sale  is  a  contract whereby the seller transfers or agrees to transfer the  pro- perty  in  goods to the buyer for  the  money  consideration called  the price.  There were two separate contracts.   The price  was different in the two contracts.  This  difference also  dissociates  the two contracts from each  other.   The High  Court  was  right in holding that  the  sales  of  the appellant  to the Corporation were exigible to  tax  because the  appellant’s sales to the Corporation were not sales  in the course of export.  It has now been held by this Court in Glass Chatons & Users’ Association v. Union of India  (1962) 1  S.C.R.  862  ; Dave Son of Bhimji Gohil  v.  Joint  Chief Controller of Imports & Exports 182 (1963)  2 S.C.R. 73; and M/s.  Daruka & Co. v. The Union  of India & Ors.   (1973)  2  S.C.C.  617  that  the  system  of canalisation of exports  or  imports  to the  State  Trading Corporation is constitutionally valid.  The  broad   reasons for  the  system  of canalisation are  control"  of  foreign exchange  and  prevention  of  abuse  of  foreign  exchange. Counsel for Minerals and Metals Trading Co. which became the successor  to  the  Corporation did  not  contend  that  the Corporation  is  an  agency.  Agency is  created  by  actual authority  given  by principal to the agent  or  principal’s ratification  of contract entered into by the agent  on  his behalf  but  without  his authority.  Agency  arises  by  an ostensible authority conferred by the principal on the agent or  by  an  implication of law in cases  of  necessity.   On behalf of the appellant it was said that the Corporation  is an  agent of necessity because the Corporation is a  special agency to carry out certain public policies.  The  appellant contends  that it is the exporter and the foreign  buyer  is the  importer  and  the contract is  said  to  be  processed through the agency of the Corporation.  Agency of  necessity arises  where the persons authorised to act as an agent  for another  without any regard to the consent of the  principal act  in certain circumstances and the law creates an  agency of  necessity.   A wife becomes an agent of  necessity.   In other cases agency of necessity is often applied where after the  parties  have created a contractual  relationship,  the law,  in  view  of some emergency, confers  upon  one  party authority  to act for another, or allows an agent to  exceed the  authority  which has been conferred upon him.   In  the present  case, there is no principal and agent  relationship

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between the appellant and the Corporation and in the absence of such relationship the agency of necessity does not arise. Other instances of agency of necessity are where the  master of a ship is entitled in the case of accident to enter  into a   contract   which   binds  the  owner   of   the   cargo, notwithstanding that it transcends his express authority  if it is bonafide made in the best interests of the owners con- cerned.   The same power is possessed by a land  carrier  in respect  of  perishable  goods.  In the  present  case,  the relationship  between the appellant and the  Corporation  is between  two principals and there is no aspect  whatever  of principal and agency.  Further, this question of agency  was never raised before the Sales Tax authorities. Counsel  for  the  appellant contended  that  the  contracts between  the  appellant and the Corporation were  F.  O.  B. contracts and the property passed only on shipment when  the goods  were in the course of export.  It was also said  that the goods sold by the appellant to the Corporation could not be   diverted  by  the  Corporation,  and,  therefore,   the transaction  was  in  the course of  export.   Reliance  was placed  on the decisions of this Court in B. K.  Wadeyar  v. M/s  Daulatram Rameshwarlal (1961) 1 S.C.R. 924 ;  State  of Bihar  v.  Tata Engineering & Locomotive Co. Ltd.  (1971)  2 S.C.R.  849;  National Tractors, Hubli  v.  Commissioner  of Commercial Taxes, Bangalore (1971) 3 S. C. C. 143. In Wadeyar’s case (supra) sales were direct between  Daulat- ram Rameshwarlal and the foreign buyer.  Under the contracts Daulatram  Rameshwerlal continued to be owners of the  goods till the goods                             183 crossed  the customs barriers.  The Revenue  contended  that property  passed  to the foreign buyer before  shipment  for three  reasons.  First, the bill of lading was taken in  the name of the foreign buyer.  Second, the export was under the contract to be under the buyer’s export licence. behind, the export clause contained a provision that it shall be  deemed to be a condition on licence that the goods, for the  export of  which licence is granted, shall be the property  of  the licensee  at the time of the export.  This Court  said  that the term in the contract for payment against presentation of documents  meant that the bills of lading were  retained  by the  sellers and the buyer would pay on presentation of  the bills of lading.  The retention of the bill of lading by the seller  would indicate an intention of the parties that  the property  in  the goods would not pass till  after  payment. With  regard  to the, export licence, it was said  that  the presumption in F.O.B. contract is that it is the duty of the buyer  to obtain export licence though in the  circumstances of a particular case this duty may fall on the seller.   The clause  in the, Export Control Order was construed  to  mean that  the words "at the time of the export do not  mean  the time when the goods crossed the customs barrier.  Finally it was  said  that export as defined in the Import  and  Export Control Act, 1947 means taking out of India by land, sea  or air  ;  and,  therefore,  export  cannot  be  held  to  have commenced till at least the ship carrying the goods has left the port.  Further Wadeyar’s case is before the Act. In the National Tractors case (supra) the assessee purchased iron ore from mine owners and sold them to the State Trading Corporation  for  export  to  foreign  countries.   Ore  was transported by rail from the mines-from Hospet to Hubli  and from  there by road to Karwar port where it was loaded  into ships for transportation to foreign countries. Under  the relevant provision of the Mysore Sales  Tax  Act, tax  was payable on iron ore at the point of  last  purchase

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within  the State.  The sales tax authorities held that  the last  purchaser  was  the State  Trading  Corporation,  and, therefore, the assessee was not liable to pay tax.  The High Court  held that the assessee is liable to tax because,  the transactions with the State Trading Corporation were in  the course  of  export.  This Court held that in  the  light  of presumption  which arises in the case of  F.O.B.  contracts, the  property did not pass to the State Trading  Corporation until  the goods were actually put on board the  ship,  and, therefore,  the assessee was the last purchaser  within  the State  and was liable to tax.  The decision in the  National Tractors case (supra) was on the question as to who was  the last  purchaser in the State.  It was not the contention  of the  assessee  that the sale to the Corporation was  in  the course of export. In  the Tata Engineering & Locomotive Co. Ltd. case  (supra) the  assessee was carrying on the business of  manufacturing and  selling  trucks, bus chassis and spare parts  to  their appointed  dealers.  Agreement,,, entered into  between  the assessee and dealers showed that each dealer was assigned  a territory in which alone the dealer could sell.  The dealers had to place indents, pay the price of goods to be pur- 10 SC/75--13 184 chased  and obtained delivery orders from the Bombay  Office of  the assessee.  In pursuance of the delivery  orders  the trucks  etcetera were delivered in Bihar to be taken to  the territories assigned to them for sale there.  If the dealers failed to abide by the term requiring them to move the goods outside the State of Bihar they would have committed  breach of  their contracts.  The question was whether the  turnover relating  to the sales made by the assessee to  its  dealers for sale by them in their respective territories outside the State  of Bihar was exempt from liability to pay  sales  tax under the, Bihar Sales Tax Act, on the ground that the sales took  place in the course of inter-State trade or  commerce. It  was  held that where under the terms of  a  contract  of sale, the buyer is required, as a necessary incident of  the contract,  to  remove the goods from the State in  which  he purchased the goods to another State and when the goods  are so  removed,  the sale must be considered as a sale  in  the course  of  inter-State  trade or  commerce.   In  the  Tata Engineering & Locomotive Co. (11) case (supra) the ratio was that  under  the  contracts  of  sale  the  purchasers  were required  to  remove the goods from the State  of  Bihar  to other States.  In the present case, the movement of goods in the course of export began when the Corporation shipped  the goods under the export contract between the Corporation  and the foreign buyer. In  the  present case, the mention of F.O.B.  price  in  the contracts between the appellant and the Corporation does not render  the  contracts  F.O.B. contracts  with  the  foreign buyer.   The Corporation entered into independent  contracts with  the  foreign buyers on F.O.B. basis.   The  appellants were required under the contracts between the appellant  and the Corporation to bring the goods to the shop named by  the Corporation.   The shipment of the goods by the  Corporation to  the  foreign buyer is the F.O.B. contract to  which  the appellants are not the parties.  The course of export in the export  stream is possible in direct contracts  between  the Indian  seller  and  the  foreign  buyer.   The  Corporation purchased  goods from the appellants in order to fulfil  the contract  with  the, foreign buyer.  The only scope  of  the deeming provision in the Act is to find out the contract  of sale  which  is  the direct cause  or  which  occasions  the

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export. The expression "in the course" implies not only a period  of time during which the movement is in progress but postulates a  connected relation.  Sale in the course of export out  of the  territory  of India means sale taking  place  not  only during the activities, directed to the end of exportation of the  goods  out  of  the country but  also  as  part  of  or connected with such activities.  In Burmah Shell Oil Storage & Distributing Co. v. Commercial Tax Officer (1961) 1 S.C.R. 902  it was said that the word "export" did not mean a  mere taking out of the country but that the goods may be sent  to a  destination at which they could be said to  be  imported. The directions given by the Corporation to the appellant  to place  the  goods  on board the ship  are  pursuant  to  the contract of sale between the appellant and the  Corporation. These  directions are not in the course of  export,  because the   export  sale  is  an  independent  one   between   the Corporation and the foreign buyer.  The taking of the  goods from the appellant’s place                             185 to the ship is completely separate from the transit pursuant to the ,export sale. The  fact  that the, exports can be made  only  through  the State Trading Corporation does-not have the effect of making the appellants the exporters where there is direct  contract between the Corporation and the foreign buyer.   Restriction on  export that export can be made ,only through  the  State Trading Corporation is a reasonable restriction and has been upheld   by  this  Court  in  several  decisions  to   which reference’ has been made earlier. For these reasons, we are of opinion that the High Court was correct  in  its conclusion that the contracts  between  the appellant  and  the Corporation were not entitled  to  claim exemption  within  the meaning of section 5(1) of  the  Act. Civil  Appeals No. 697-706 of 1973 are  dismissed.   Parties will pay and bear their own costs.  In  Civil  Appeals, No. 2063-2082 of  1974  the  appellants entered  into similar contracts with the  Corporation.   The Corporation entered into similar contracts with the  foreign buyers.  The appellants were assessed to tax under the  Act. The appellants made an application to the Tribunal to  refer the  question to the High Court as to whether the  sales  by the  appellants  to the Corporation were in  the  course  of export.   The  Tribunal  dismissed the  application  of  the appellants.   The appellants applied to the High  Court  for orders that the Tribunal be called upon to file statement of case.  The High Court dismissed the applications.  The  High Court relied on the decision which is the subject matter  of Civil  Appeals  No.  697-706  of  1973.   In  view  of   our conclusion  in  Civil Appeals No. 697-706 of 1973  that  the appellants are not entitled to claim exemption Civil Appeals No. 2063-2082 of 1974 are dismissed. In view of the fact that the High Court directed the parties to  pay and bear their own costs, similar order is  made  in all these appeals. KHANNA, J.-This judgment would dispose of civil appeals Nos. 697 to 706 of 1973 which have been filed by special leave by Md.   Serajuddin  against the judgment of  the  Orissa  High Court whereby the High Court answered the following question in respect of the two of the sales in favour of the  revenue and against the assessee-appellant :               "Whether on the facts and in the circumstances               of  the case, the Sales Tax Tribunal is  right               in  holding that the sales effected under  the               following  four contracts. were sales  in  the

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             course of export not exigible to tax under the               Central Sales Tax Act, 1956 ?" Apart from the two sales with which we are concerned in  the present  appeals, the question also covered two other  sales but in expect 186 of  them, the answer of the High Court was in favour of  the assessee appellant.  So far as that part of the judgment  of the  High Court is concerned, its correctness has  not  been assailed by the revenue. The assessee-appellant is a registered dealer of Cuttack III Circle  under  the  Central Sales Tax  Act.   The  appellant carries on the business of mining and exporting mineral ores to  foreign  countries.   The appellant  entered  into  four contracts  for  sale of chrome concentrates.  Two  of  those contracts  were No. 19615 dated May 29, 1959 and  No.  20579 dated  December  7,  1959 with Messrs  Associated  Metals  & Minerals,  New  York  and Messrs Jan  De  Footer,  Rotterdam (Holland)  respectively.  In 1960 the sale of  mineral  ores for   export  was  canalised  through  the   State   Trading Corporation (hereinafter described as STC).  The  appellants entered  into two contracts No. 6/60 dated October 26,  1960 and  No. 2161 dated April 14, 1961 for sale of those  chrome concentrates  with  STC.   STC  in  its  turn  entered  into contract with foreign buyers.  The appellant was assessed to tax  for the quarters ending September 30, 1959 to  December 31,   1961  by  the  Sales  Tax  Officer,  who  made   these assessments  to  the best of his judgment as  the  appellant failed  to produce his account books or other, documents  in support   of-.  the  returns.   On  appeal   the   Assistant Commissioner reduced the assessments for nine out of the  10 quarters and enhanced the assessment for the quarter  ending March  31,  1961.  On second appeal the Sales  Tax  Tribunal remanded  the case for fresh assessment, after holding  that tile  sales,  effected  by the  appellant  under  the  above mentioned four contracts were sales in the course of  export and  were  thus  exempt from payment  of,  sales  tax  under article  286(1)  of the Constitution.  The State  of  Orissa filed  applications  before the Tribunal for  referring  the above question of law to the High Court.  Those applications were  rejected  by  the  Tribunal.   Thereupon,  the   State approached the High Court.  The High Court then called  upon the  Tribunal  to  state  a  case  and  refer  the  question reproduced above to it. The  High Court in the judgment under appeal has  held  that the  two contracts dated May 29, 1959 and December  7,  1959 with  the foreign buyers occasioned export of  the  minerals out of the territory of India and, as such, those sales were not  exigible  to tax under the Central Sales Tax  Act.   As mentioned earlier, we are no longer concerned with those two sales.   As regards the other two sales effected  under  the contracts  dated  October 26, 1960 and April 14,  1961  with STC,  the  High  Court answered  the  question  against  the assessee-appellant  and held that those two sales  were  not exempt  from  sales  tax  under  article  286(1)(b)  of  the Constitution read with section 5(2) of the Central Sales Tax Act. In  appeal  before  us  Mr. Gobind  Das  on  behalf  of  the appellant  has assailed the judgment of the High  Court  and has  contended that the sales in question were  effected  in the  course  of  export and as such  were  exempt  from  the payment  of sales tax.  As against that, Mr. Desai       has canvassed for the correctness of the view taken by the  High court.                             187

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In  order  to  appreciate the contentions  which  have  been advanced on behalf of the parties, it may be relevant to set out  the material terms of agreement dated October 26,  1960 which  was  entered  into between  the  appellant  and  STC. According to the agreement the appellant had agreed to  sell and STC had agreed to buy Indian chrome ore on the terms and conditions   mentioned  therein.   After  setting  out   the quantity of the material and the analysis specification, the agreement mentioned the price to be               "U.S.  $ 36.00 (U.S. Dollars thirty  six)  per               long ton dry weight, basis 54% Cr O3 and 3.5/1               Cr/Fe  ratio  with  a premium of  $  1.00  for               increase  of 1 % Cr2O3 content but no  premium               above 553 CR2O3, fractions prorata ; and  with               a  penalty of $ 1.00 for each 0.1 below  3.5/1               Cr/Fe  ratio,  fractions  prorata,  FOB  ocean               liner vessel, Calcutta,." According  to clause 5, the appellant represented  that  the material would be ready in Calcutta harbour for shipment per steamer  as  Leneverett  or  Substitute  scheduled  to  load ’,during  December 1960.  Clause 6 dealt with  sampling  and analysis  and according to it, the material will be  sampled at  the  time of loading into ocean going vessel  by  R.  V. Briggs & Co. or Mitra S. K. Pt.  Ltd. and the final sampling would  be  made  at the time of unloading  at  the  port  of discharge  of  Far  East  Superintendence  Company  or  U.S. Consultants.  The seller was to supply a weight  certificate issued  by the Calcutta Port Trust Authorities which was  to form  the basis for provisional payment.  The final  weights were  to be ascertained by the U.S. Consultants at the  port of  discharge and they were to be final and binding  on  the parties.  Clauses 8 and II of the agreement read as follows               "8.  Payment  : 90% payment  against  shipping               documents as described in Buyers corresponding               sale   contract.   Buyers  will   assign   the               relevant foreign letter of credit which is  to               be  opened  in  their name  by  their  foreign               buyer, Messrs.  Associated Metals and Minerals               Corporation, on receipt from the sellers of  a               Bank  draft for difference between buyers  FOB               purchase value and FOB Sale value,, that is  $               1.00 (Rs. 4.75 nP) per dry long ton for a Bank               guarantee  from a scheduled Bank  guaranteeing               that sellers will pay buyers immediately  upon               shipment/shipments   the  difference   between               buyers  FOB  purchase value as shown  in  this               contract and buyers FOB sale value as shown in               foreign letter credit that is Dollar ’One (Rs.               4.75  nP) per dry long ton by Bank  Draft  for               each shipment and the buyers will endorse  the               bills  of  lading  and  deliver  the  same  to               sellers   to  negotiate  against   the   above               mentioned  letter  of credit.   Balance  after               destinational weight and analysis on the basis               of documents mentioned in STC’s  corresponding               sale contract with buyers.  If the balance 10%               is  insufficient to cover shortfall in  weight               and  analysis  at destination or  any  penalty               imposed   by   STC’s   foreign   buyers,   the               additional amount shall be payable by  sellers               to buyers on demand.                                    188               11.   Special  Clause : (i)  Unless  otherwise               agreed  upon,  the  sellers  agree  that   the               contract  shall be deemed as cancelled if  for

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             any reason whatsoever M/s.  Associated  Metals               &  Minerals Corporation, cancel their  corres-               ponding purchase contract with the buyers  for               supply of chrome ore.               (ii)  The  terms and conditions of the  buyers               corresponding    sale   contract   with    M/s               Associated Metals & Minerals Corporation  will               apply  to  this contract also  except  to  the               extent specified in this purchase contract.               (iii) A true copy of buyers sale contract with               M/s  Associated Metals & Minerals  Corporation               is attached." On November 4, 1960 M/s.  P. Friedlaender & Co. of  Calcutta addressed  communication to the appellant stating  that  the above  mentioned  company  bad  been  asked  by  the   Joint Divisional  Manager of STC to let them have details  of  the above  sale  mentioning specifications.  delivery,  payment, weight and analysis to be duly approved by the appellant  to enable  STC  to draw up the necessary  contract.   M/s.   P. Friedlaender   &   Co.  also  reproduced   the   particulars concerning-  the  transaction.  The appellant was  asked  to sign  a copy of the letter to enable M/s P.  Friedlaender  & Co.  to forward the same to STC as the appellant’s  approval of the transaction.  The letter gave the same particulars of the quantity, specifications, price, sampling and  assaying, weighting  and  shipment  which had been  mentioned  in  the agreement  between  the appellant and STC.  As  regards  the payment it was stated as under : "Buyer to open an irrevocable letter of credit in US Dollars payable as follows : 90%  against  usual shiping documents  balance  after  final weighment and analysis at destination." The  letter was signed on behalf of the appellant by  M.  K. Rahman in token of its acceptance. In the meantime on October 26, 1960 the Chase Manhattan Bank New  York  sent a letter of credit to STC for  thirty  seven thousand  U.S. dollars in the account of  Associated  Metals and  Minerals  Corporation.  It was stated that  it  was  in connection  with the provisional commercial invoice for  one thousand  long  ton Indian chrome  concentrates  originating from  the appellant.  In the letter of credit it was  stated that it might be assigned by STC in favour of the appellant. On  December  30,  1960 the  appellant  sent  the  different documents  to  the  shipment of the  goods  along  with  the original  letter  of credit assigned in his  favour  to  the United  Commercial Bank.  Accompanying the letter  was  also the  invoice sent by the appellant, in respect of the  above material. I  need not set out the terms of the other  agreement  dated April  14, 1961 between the appellant and STC as it  is  the common case of the                             189 parties  that the relevant terms of that agreement  are  not materially different from the above mentioned agreement. Article 286(1) (b) provides :               "286.  (1) No law of a State shall impose,  or               authorise the imposition of, a tax on the sale               or  purchase of goods where sale  or  purchase               takes place-               (b)   in  the  course of import of  the  goods               into,  or  export  of the goods  out  of,  the               territory of India." There was no definition of the expression "in the course  of the import of the goods into, or export of the goods out of, the  territory of India" before the Sixth Amendment  of  the

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Constitution.   By  that Amendment.   Parliament  was  given power  to  formulate  the  principles  for  construing   the expression.  The Parliament accordingly provided in  section 5 of the Central Sales Tax Act, 1956 as under :               "5.  (1) A sale or purchase of goods shall  be               deemed  to  take place in the  course  of  the               export  of the goods out of the  territory  of               India  only  if the sale  or  purchase  either               occasions  such  export or is  effected  by  a               transfer  of documents of title to  the  goods               after  the  goods  have  crossed  the  customs               frontiers of India.               (2)   A  sale  or purchase of goods  shall  be               deemed  to  take place in the  course  of  the               import  of  the goods into  the  territory  of               India  only  if the sale  or  purchase  either               occasions  such  import or is  effected  by  a               transfer  of documents of title to  the  goods               before  the  goods have  crossed  the  customs               frontiers of India." In  Sale  of  Travancore-Cochin & Ors.  v.  The  Bombay  Co. Ltd.(1) Patanjali Sastri CJ. speaking for the Court observed               "A  sale by export thus involves a  series  of               integrated  activities  commencing  from   the               agreement  of  sale with a foreign  buyer  and               ending  with  the delivery of the goods  to  a               common  carrier  for  transport  out  of   the               country by land or sea.  Such a sale cannot be               dissociated  from the export without which  it               cannot  be effectuated, and the sale  and  re-               sultant   export  form  parts  of   a   single               transaction." In  the  case  of  State  of  Travancore-Cochin  &  Ors.  v. Shanmugha Vilas Cashew Nut Factory & Ors.(2) it was held  by this Court that purchases in the State made by the exporters for  the  purpose of export ,arc not  within  the  exemption granted   by  article  286(1)  (b)  of   the   Constitution. Patanjali Sastri CJ. speaking for the majority observed               "The  word  ’course’  etymologically   denotes               movement  from one point to another,  and  the               expression ’in the course (1)  [1952] SCR 1112. (2)  [1954] SCR 53.                             190               of  not only implies a period of  time  during               which   the  movement  is  in   progress   but               postulates       also       a        connected               relation....................  A  sale  in  the               course  of  export out of the  country  should               similarly  be  understood in  the  context  of               clause 1(b) as meaning a sale taking place not               only during the activities directed to the end               of exportation of the goods out of the country               but  also  as part of or connected  with  such               activities." The  learned Chief Justice further observed that the  phrase "integrated  activities" which had been used in  an  earlier decision to denote a sale which occasions the export  cannot be  dissociated from the export without which it  cannot  be effectuated,  and  the sale and the  resultant  export  form parts  of a single transaction.  It was in that  sense  that the  two activities-the sale and the export-were said to  be integrated.  But a purchase for the purpose of  export  like production  or  manufacture for export, being  only  an  act preparatory  to export could not be regarded as an act  done

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"in  the  course  of  the export of the  goods  out  of  the territory of India." A  sale  in  the course of export  predicates  a  connection between  the  sale and export, the two activities  being  so integrated  that  the connection between the two  cannot  be voluntarily interrupted, without a breach of the contract or the  compulsion arising from the nature of the  transaction. In  this sense to constitute a sale in the course of  export it  may be said that there must be an intention on the  part of  both the buyer and the seller to export, there  must  be obligation  to export, and there must be an  actual  export. The  obligation  may arise by reason  of  statute,  contract between  the  parties,  or  from  mutual  understanding   or agreement  between  them,  or even from the  nature  of  the transaction  which links the sale to export.  A  transaction of  sale which is a preliminary to export of  the  commodity sold  may  be  regarded as a sale for  export,  but  is  not necessarily  to be regarded as one in the course of  export, unless  the sale occasions export.  And to  occasion  export there  must exist such a bond between the contract  of  sale and  the actual exportation, that each link is  inextricably connected  with the one immediately preceding  it.   Without such  a bond, a transaction of sale cannot be called a  sale in  the  course of export of goods out of the  territory  of India  (see  Ben Gorm Nilgiri Plantations Co. v.  Sales  Tax Officer, Special Circle Ernakulam &, Ors. (1) The appellants in  that case were carrying on the business of  growing  and manufacturing  tea in their estates.  They sold tea  to  the local  agents  of  the foreign buyers.  The  sales  were  by public auction at Fort Cochin, through brokers in accordance with the provisions of the Tea Act, 1953.  The purchases  by the  local agents of the foreign buyers were with a view  to export  the goods to their principals abroad and  the  goods were  in  fact exported out of India. it was held  that  the sales by the appellants to the agents of the foreign  buyers did  not conic within the purview of article 286(1)  (b)  of the  Constitution.  Dealing  with the  contention  that  the sellers had knowledge that the (1)  [1964] 7 SCR 706.                             191 goods  purchased  from  them  were  with  the  intention  of exporting, Shall J. speaking for the majority observed :               "But there is nothing in the transaction  from               which springs a bond between the sale and  the               intended export linking them up as part of the               same  transaction.  Knowledge that  the  goods               purchased are intended to be exported does not               make  the  sale and export parts of  the  same               transaction,  nor does the sale of  the  quota               with  the  sale  of the  goods  lead  to  that               result.  There is no statutory obligation upon               the  purchaser  to export the  chests  of  tea               purchased by him with the export rights.   The               export  quota merely enables the purchaser  to               obtain export licence, which he may or may not               obtain.   There  is nothing in law or  in  the               contract  between the parties, or even in  the               nature  of  the  transaction  which  prohibits               diversion   of   the   goods   for    internal               consumption.  The sellers have no concern with               the actual export of the goods, once the goods               are  sold.   They  have no  control  over  the               goods.    There   is   therefore   no   direct               connection between the sale and export of  the               goods  which  would  make  them  parts  of  an

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             integrated  transaction of sale in the  course               of export." In  K. G. Khosla & Co. v. Deputy Commissioner of  Commercial Taxes(1),  the  appellant entered into a contract  with  the Director-General  of Civil Supplies for the supply of  axle- bodies manufactured by its principals in Belgium.  The goods were inspected on behalf of the buyers in Belgium but  under the  contract  they were liable to rejection  after  further inspection  in  India.   In pursuance of  the  contract  the appellant  supplies axle-bodies to the Southern  Railway  at Perambur  and Mysore.  It was held that the movement of  the goods from Belgium to India was in pursuance of the contract between  the appellant and the Director-General of  Supplies and  Disposals  and that there was no possibility  of  those goods being diverted by the appellant for any other purpose. The sale was accordingly held to be in the course of import, and as such, exempt from taxation. In Coffee Board, Bangalore v. Joint Commercial Tax  Officer, Madras  & Anr.(2) this Court dealt with a case  relating  to the  export of coffee.  Export of coffee outside  India  was controlled under the Coffee Act, 1942, by the Coffee  Board. Coffee   especially  screened  and  selected  was  sold   to registered  exporters  at ’export auctions’.   Permits  were given  to  such registered exporters to participate  at  the auction.   The  Coffee Board prepared a set of  rules  which incorporated  the terms and conditions of sale of coffee  in the  course  of export.  Under condition 26 of the  Rules  a registered  dealer was to give an ,export  guarantee’  under which  export would be made only to stipulated  or  approved destinations.   The buyer at an export auction was  free  to export the coffee either by himself or through a  forwarding agent,  without selling the goods to the  forwarding  agent. Immediately after the export evidence of the shipping bad to be produced before the (1)  [1966] 3 SCR 352. (2)  [1970] 3 SCR 147.                             192 Chief  Marketing Officer.  In case of default, according  to conditions  30 and 31, the permit holder was liable to  fine and  the  unexported coffee wits liable to be  seized.   The Coffee  Board  claimed that sales of  coffee  to  registered exporters  had  been made in the course of export.   It  was held by the majority that the sales by the Coffee Board were sales   for  export  and  not  in  the  course  of   export. Hidayatullah  C.I.  speaking for the majority in  that  case observed :               "The  phrase  ’sale it the course  of  export’               comprises in itself three essentials: (i) that               there  must  be a sale (ii)  that  goods  must               actually  be exported and (iii) the sale  must               be a part and parcel of the export.  Therefore               either the sale must take place when the goods               are  already in the process of being  exported               which  is established by their having  already               crossed  the  customs frontiers, or  the  sale               must occasion the export.  The word ’occasion’               is used as a verb and means ’to cause’ or  ’to               be the immediate cause of’.  Read in this  way               the sale which is to be regarded as exempt  is               a  sale which causes the export to take  place               or is the immediate cause of the export.   The               export  results from the sale and is bound  up               with it.  The word ’course’ in the  expression               ’in  the course of’ means progress or  process               of’, or shortly ’during’.  The phrase expanded

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             with  this meaning reads ’in the  progress  or               process   of  export’  or   ’during   export’.               Therefore  the export from India to a  foreign               destination  must be established and the  sale               must  be a link in the same export  for  which               the  sale  is  held.  To  establish  export  a               person  exporting and a person  importing  are               necessary elements and the course of export is               between  them.  Introduction of a third  party               dealing  independently with the seller on  the               one  hand and with the importer on  the  other               breaks the link between the two for them there               are  two  sales one to  intermediary  and  the               other to the importer.  The first sale is  not               in the course of export for the export  begins               from  the  intermediary  and  ends  with   the               importer.               Therefore  the tests are that there must be  a               single sale which itself causes the export  or               is  in  the  progress or  process  of  export.               There is no room for two or more sales in  the               course of export.  The only sale which can  be               said  to  cause the export is the  sale  which               itself  results in the movement of  the  goods               from the exporter to the importer." The decision in the case of Coffee Board (supra) was  relied upon  by  this Court in the case of M/s.   Binani  Bros.  v, Union  of India(1).  The petitioner in that  case  purchased goods  from  foreign sellers and supplied the  same  to  the Directorate   General  of  Supplies  &  Disposals   (DGS&D). Question  arose whether the sale by the petitioner to  DGS&D took  place  in  the course of  export.   The  question  was answered in the negative and it was observed that there  was no  reason  in principle to distinguish this case  from  the decision in the Coffee Board’s case. (1)  [1974] 1 S.C.C. 459.                             193 Before dealing with the question as to whether the sales  in question  took place in the course of export, I may  mention that  the,  sale of mineral ores for  export  was  canalised through STC in pursuance of an order made under the  Imports and Exports (Control) Act, 1947 (Act 18 of 1947).  Section 3 of  that Act empowered the Central Government  to  prohibit, restrict or otherwise control imports or exports.  Under the powers  conferred  by that section, the  Central  Government issued  the Exports Control Order, 1958.  Clause 3  of  that order provided that no person shall export any goods of  the description  specified  in Schedule I except  under  and  in accordance with a licence granted by the Central  Government or by any officer specified in Schedule It.  Chrome ore  and concentrates were specified in the first schedule.  Clause 6 of   that  order  inter  alia  provided  that  the   Central Government  or the Chief Controller of Imports  and  Exports may refuse to grant a licence or direct any other  licensing authority  to  grant a licence if  the  licensing  authority decides  to canalise exports through special or  specialised agencies  or  channels.  It Was If pursuance  of  the  above power  that the export of chrome concentrates was  canalised through STC.  Subsequently this function has been taken over by the Minerals and Metals Trading Corporation of India Ltd. (MMTC). I may now advert to the question as to whether the sales  in question  took place in the course of export.  I have  given above the broad facts and it would appear therefrom that the agreement  between  the appellant and STC  incorporated  the

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terms  and  conditions which had been  settled  between  the appellant  and the foreign buyer.  The terms and  conditions of the contract between STC and the foreign buyer were  also to  apply  to the contract between the  appellant  and  STC, except to the extent specified in the latter agreement.   It was  agreed that the contract between the appellant and  STC would  be  deemed cancelled if for any  reason  the  foreign buyer  cancelled  the corresponding purchase  contract  with STC.   The agreement between the appellant and  STC  clearly contemplated the export of chrome concentrates.  The name of the ship on which the chrome concentrates were to be  loaded for  the purpose of export was also given in the  agreement. The  price to be paid by STC to the appellant was  fixed  in terms  of  dollars plainly because the price to  be  charged from  the  foreign  buyer was fixed  in  terms  of  dollars. Indeed, the amount that STC was to get in the course of this transaction was one dollar per ton of the concentrates.  The name  of the foreign buyer to whom the  chrome  concentrates supplied  by  the appellant were to be  sold  was  expressly mentioned  in the agreement between the appellant  and  STC. The final sampling of the chrome concentrates as well as the final  weights  were  to  be  ascertained  at  the  port  of discharge  in America and the certificates in  that  respect were  to be binding on the parties.  Although the letter  of credit  was to be opened by the foreign buyer in  favour  of STC, STC was to assign the same in favour of the  appellant. The appellant was to get 90 per cent against shipping  docu- ments  and  the remaining 10 per  cent  after  destinational weight and analysis.  Before doing that the appellant had to give a bank draft or a bank guarantee to STC at the rate  of one dollar per ton of the concentrates to be supplied by the appellant. 194 The  facts of the case, in my opinion, go to show  that  the export  of  the chrome concentrates was  occasioned  by  one transaction.   The  parties  to that  transaction  were  the appellant,  STC and the foreign buyer.  S.T.C.  was  brought into  the  picture as an intermediary because of  the  legal requirement,  according  to  which  the  export  of   chrome concentrates was to be canalised through STC.  Although  the above   requirement  necessitated  the  execution   of   two agreements, one between the appellant and STC and the  other between STC and the foreign buyer, there can, in my opinion, be no doubt that the agreements were part of one  integrated transaction which resulted in the export of the goods.   The interconnection  between the two agreements was so  intimate that  one agreement could not stand without the  other.   It was  accordingly  provided  that  the  cancellation  of  one agreement would automatically result in the cancellation  of the other agreement. Mr. S. T. Desai on behalf of the respondents has laid  great stress  on  the  observations in the case  of  Coffee  Board (supra),  according  to which there must be  a  single  sale which causes the export and there is no room for two or more sales in the course of export.  It is urged that it was  the agreement  of sale between STC and the foreign  buyer  which can be said to cause the export.  The sale by theappellant to  STC  of the chrome concentrates      was  only  for  the purpose of export and as such was not exempt from payment of tax.Learned counsel further submits that once there are two contracts,  one between the dealer and the intermediary  and the  other between the intermediary and the  foreign  buyer, the  court ’need not took any further, for it would be  only the contract between the intermediary and the foreign  buyer which would occasion the export and not the other contract.

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I find it difficult to accede to the above submission of Mr. Desai.  The observations in the case of Coffee Board (supra) that  there was no room for two or more sales in the  course of export were made in the context of two independent sales. Those  observations  cannot be invoked in a  case  like  the present  where the two sales are so interconnected as to  be part  of  one  integrated  transaction.   Hidayatullah   CJ. speaking  for the majority took full note of that aspect  of the matter and it was in that context that lie observed               "Here there are two independent sales involved               in the export programme.  The first is a  sale               between  the  Coffee Board as  seller  to  the               export  promoter.  Then there is the  sale  by               the  export promoter to a foreign  buyer.   Of               the latter sale the Coffee Board does not have               any  inkling when the first sale takes  place.               The  Coffee  Board’s sale is not  in  any  way               related  to the second sale.   Therefore,  the               first  sale has no connection with the  second               sale which is in the course of export, that is               to say, movement of goods between an  exporter               and an importer." The  above observations would have been  wholly  unnecessary and  superfluous if it had been the intention of this  Court to  lay  down  an absolute rule that  once  there  arc,  two contracts, one between the dealer                             195 and the intermediary and the other between the  intermediary and  the  foreign buyer, the court need not  look  to  other circumstances showing their inter-relationship and that only the latter contract would qualify for exemption from payment of tax.  This Court in a series of cases, all decided by the Constitution Bench, namely, State of Travancore-Cochin & Ors v. The Bombay Co. Ltd., State of Travancore Cochin & Ors. v. Shanmugha  Vilas  Cashew  Nut Factory & Ors.  and  Ben  Gorm Nilgiri  Plantations  Co.  v. Sales  Tax  Officer,  Special’ Circle,  Ernakulam  & Ors (supra), had laid  stress  on  the integrated  nature  of the activities and  the  close  nexus between  the contract of sale and the export of goods.   The Coffee Board case, which too was decided by the Constitution Bench,  could  not  set at naught the rule laid  down  in  a ’series  of earlier decisions and, in fact it did not do  so as  is  apparent from the passage reproduced  above  wherein Hidaytullah  CJ. dealt with the question as to  whether  the two  contracts were independent or not.  The  correct  legal position, in my opinion, is that if there is one  integrated transaction  which  results  in export  the  fact  that  the transaction  takes  the shape of two  interlinked  contracts would not make much material difference. Argument similar to that advanced by Mr. S. T. Desai  before us was put forth on behalf of the State in the case of State of Bihar & Anr. v. Tata Engineering & Locomotive Co. Ltd.(1) and was repelled in the following words               "We have earlier noticed that this Court in  a               series   of   decisions  has   pronounced   in               unambiguous  terms that where-under the  terms               of  a contract of sale, the buyer is  required               to remove the goods from the State in which he               purchased  those  goods to another  State  and               when  the  goods  are so moved,  the  sale  in               question must be considered as a ,ale in  the               course of inter-State trade or commerce.  This               is a well established position in law.  In the               Coffee  Board case this Court did not  deviate               from this position nor could it deviate as the

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             earlier decisions were binding on it.  Further               in  the  course of his judgment.  the  learned               Chief Justice who spoke for the Court referred               with approval to the earlier decisions of this               Court  where distinction between the sales  in               the  course of inter-State trade  or  commerce               and sales for the purpose of inter-State trade               and commerce were explained.  On the basis  of               the  facts of that case, his Lordship came  to               the  conclusion that the export of the  coffee               in question was not integrated with the  sales               with  which the Court was concerned  and  that               there  was no direct bond between  the  export               and the sales." The passage I have already reproduced earlier was thereafter set out. One important criterion in order to determine as to  whether the   contract  of  sale  between  the  appellant  and   STC occasioned the export (1)  [1971] 2 SCR 849.                             196 is  to find whether STC could divert the goods  supplied  by the  appellant  for a purpose other than the export  to  the foreign  buyer.  If the answer be in the negative, it  would necessarily  follow that the contract between the  appellant and STC resulted in the export of chrome concentrates.   The above  criterion was applied in a number of cases.   In  the case  of  Ben  Gorm Nilgiri  Plantations  Co.  (supra)  Shah speaking for the majority observed :               "There  is  no statutory obligation  upon  the               purchaser   to  export  the  chests   of   tea               purchased by him with the export rights.   The               export  quota merely enables the purchaser  to               obtain export licence, which he may or may not               obtain.   There  is nothing in law or  in  the               contract  between the parties, or even in  the               nature  of  the  transaction  which  prohibits               diversion   of   the   goods   for    internal               consumption." In the case of K. G. Khosla & Co. (supra) Sikri J. speaking. for this Court observed :               "Movement  of goods from Belgium to India  was               in pursuance of the conditions of the contract               between the assessee and the  Director-General               of  Supplies.   There was  no  possibility  of               these goods being diverted by the assessee for               any other purpose.  Consequently we hold  that               the  sales took place in the course of  import               of  goods within s. 5(2) of the Act, and  are,               therefore, exempt from taxation."               In   the   case  of   Coffee   Board   (supra)               Hidayatullah CJ observed               "The  compulsion  to  export  here  is  of   a               different character.  It only compels  persons               who  buy on their own to export in  their  own               turn  by entering into another sale.  It is  a               sale for export.  Even with the compulsion the               sale may not result for clauses 26, 30 and  31               visualize such happenings." Coming to the facts of the present case, I find that it  was an  f.o.b.  sale  and  there was  absolutely  no  chance  of diversion  of the goods by STC for a purpose other than  the export to the foreign buyer. It may also be mentioned that the position of STC under  the contract  between  the  appellant  and  STC  was  not  of  a

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purchaser in the ordinary sense of the term.  Unlike such  a purchaser,  STC was not entitled to get profits and was  not liable  to  bear losses resulting from fluctuations  in  the market rate of the goods specified in the contract.  It  was not  open to STC to charge any price for the goods  exported to  the  foreign buyer.  The price to be  charged  from  the foreign buyer was already fixed in the contract between  the appellant  and  STC.   An ordinary  purchaser  of  goods  is entitled to resell the goods or retain them with himself for any  length  of time.  There is no obligation  upon  him  to export  the goods, much less to export them to  a  specified foreign  buyer.  As against that, in the present case  is  a result  of the agreement between the appellant and STC,  the latter was not entitled to retain the goods but was bound to export them immediately to the specified foreign buyer at  a price which was at-                             197 ready  mentioned in the agreement between the appellant  and STC.   In fact, the arrangement for export of the goods  was also  made  by the appellant because the  contract  of  sale between the appellant and STC was f.o.b. contract.  STC came into the picture as a statutory intermediary because of  the legal  requirements  under the Exports Control  Order.   All that STC was entitled in the bargain was a commission of one ’dollar  per  ton.   Indeed,  STC  in  one  of  its  letters described  its remuneration as commission.  In the  case  of M/s Daruka & Co. V. The Union of India & Ors.(1) this  Court observed  in  para 23 of the judgment that  the  Corporation like  STC  is in the nature of a commercial  undertaking  to which  a licence has been granted for the export of  certain commodities and the service charges are nothing but quid pro quo  for  the  services rendered by  the  Corporation.   The introduction  of a statutory intermediary Eke STC with  only entitlement  of commission of one dollar per ton would  not, in  my  opinion, affect the real nature of  the  transaction that  it  was  the appellant who was to  export  the  chrome concentrates to the foreign buyer. The matter can be looked at from’ another angle.   According to Article 286, no law of a State shall impose or  authorise the imposition of tax on the purchase or sale of goods where such purchase or sale takes place in the course of import of the  goods  into  or  the export of the  goods  out  of  the territory of India.  There is nothing in this article  which restricts the exemption from payment of tax to only one sale or purchase.  Likewise, there is nothing in Section 5 of the Central  Sales Tax Act which restricts the sale or  purchase occasioning  export or import to only one sale or  purchase. The  fact  that  section 5 refers to  sale  or  purchase  in singular  and  not in plural would not  make  much  material difference  because according to section 13 of  the  General Clauses  Act,  unless  there is anything  repugnant  in  the subject or context, words in the singular shall include  the plural,  and  vice versa.  Although in a  vast  majority  of cases  it  would be only one sale or  purchase  which  would qualify  for exemption from payment of tax, this is  not  an absolute  rule.   There is nothing in law to  rule  out  two sales qualifying for the exemption, if the facts of the case show  that  each  of the sales is so  interlinked  with  the export  of  the  goods, that the export can be  said  to  be direct  result  of  the  two sales which  are  part  of  one integrated transaction. It may be stated that a simple sale for export, i.e. a sale to a person who enters into a contract with a foreign  buyer and exports the goods purchased by him to the foreign  buyer would  not  by itself and in the absence  of  anything  more

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qualify  for exemption from payment of tax on the ground  of being made in the course of export.  The question with which we  are,  however,  concerned is as to  what  would  be  the position in law if the two sales are so interlinked as to be part  of the same transaction and whether the first sale  in such an event would not be exempt from taxation even  though the export is occasioned by the two contracts of sale  taken together.   The respondents cannot, therefore,  derive  much assistance from the observations relied (1)  [1973] 2 S.C.C. 617.                             198 upon  by Mr. S. T. Desai in the case of East  India  Tobacco Co. V. The State of Andra Pradesh & Anr.(1) that a sale  for the purpose of export is not protected by article 286(1) (b) of the Constitution. I may mention that in the case of Khosla & Co. (supra) there were  two  contracts.  This is clear from the  statement  of facts  given  in the judgment of the High  Court  which  was under appeal in this Court.  The judgment of the High  Court is reproduced in the report of that case in 17 STC 473.  The relevant passage in this respect reads as under :               "The  assessee, Messrs Khosla and Co.  entered               into  a contract with the Director-General  of               Supplies  and  Disposals, New Delhi,  for  the               supply  of  ’axle-box bodies’.   In  order  to               fulfil the contract, the assessee had to enter               into   contract  with  the  manufacturers   in               Belgium.   The goods were so got  manufactured               and  imported  into India and cleared  at  the               Madras Harbour and supplied to certain parties               on   the  instructions  of  the   buyer,   the               Director-General of Supplies and Disposals, as               contained in the contract itself." Despite the existence of two contracts, this Court held that the contract of sale by Khosla & Co. to the Director-General of Supplies and Disposals was exempt from payment of tax  as being in the course of import.  It was observed :               " The next question that arises is whether the               movement of axle-box bodies from Belgium  into               Madras  was  the result of a covenant  in  the               contract  of  sale  or  an  incident  of  such               contract.  it  seems to us that  it  is  quite               clear from the contract that it was incidental               to the contract that the axle-box bodies would               be  manufactured in Belgium,  inspected  there               and  imported  into India for  the  consignee.               Movement of goods from Belgium to India was in               pursuance  of the conditions of  the  contract               between the assessee and the  Director-General               of  Supplies.   There was  no  possibility  of               these goods being diverted by the assessee for               any other purpose.  Consequently we hold  that               the  sales took place in the course of  import               of goods within section 5 (2) of the Act,  and               are, therefore, exempt from taxation." Although the facts of the present case are converse to those of  Khosla  &  Co. the principle  laid  down  therein  fully applies to the present case. I  have  already mentioned above that the contract  of  sale between  the appellant and STC was an f.o.b. contract.   The question  as  to  whether such a contract  would  be  immune against  liability to sales tax under article 286 arose  for determination in the case of B. K. Wadeyar v. M/s  Daulatram Rameshwarlal(2).  The respondents firm (1)  13 S.T.C. 529.

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(2)  [1976] 1 S.C.R. 924. 199 in that case claimed exemption from sales tax under  article 286(1)  (b) of the Constitution in respect of sales made  by them  of cotton and castor oil on the ground that the  sales were  on f.o.b. contracts under which they continued  to  be the owners of the goods till those goods crossed the customs barrier and entered the export stream.  The respondents also contested the purchase tax to which they were assessed under section 10(b) of the Bombay Sales Tax Act.  It was held that the goods remained the seller’s property till they had  been brought  and loaded on board the ship and so the sales  were exempt  from tax under article 286(1) of  the  Constitution. Dealing with the f.o.b. contracts, this Court observed  that the  normal rule in such contracts was that the property  in the goods was intended to pass and did pass on the  shipment of  the  goods.   It  is no doubt true  that  there  was  no reference  in the above mentioned case to section 5  of  the Central Sales Tax Act which formulates the principles as  to when sale or purchase of goods shall be deemed to take place in  the  course  of export or import, this  fact  would  not affect the binding force of the rule laid down in the  above case.   I  may  also observe in the above  context  that  an f.o.b. sale though contemplating the export of the goods may be  made  between parties carrying on business in  the  same country (,see "Sale of Goods" by P. S. Atiyah, p. 215).  The learned  author  has  given  the  following  instance.    "A company,  which  has contracted to sell goods to  a  foreign buyer,  may  itself  buy  goods,  in  order  to  fulfil  the contract, f.o.b., English ports from English sellers." Referring  to the case of Wadeyar (supra) Shah  J.  speaking for the majority in the case of Ben Gorm Nilgiri Plantations Co. (supra) observed               "This  was  undoubtedly a case  of  two  sales               resulting  in export, and the first  sale  was               held immune from State taxation: but that  was               so  because  the  property in  the  goods  had               passed to the Indian purchaser when the  goods               were  in  the export stream.  The  first  sale               itself was so inextricably connected with  the               export  that it was regarded as a sale in  the               course of export." The above observations clearly lend support to the view that even  in  the  case of two sales. the first  sale  would  be immune against taxation if the property in the goods  passed to  the Indian purchaser when the goods were in  the  export stream.  The reason for that was that the first sale was  so inextricably connected with the export that it was  regarded as a sale in the course of export. Another  test  which was laid down in the case of  Ben  Gorm Nilgiri Plantations Co. was as under               "Where  the export is the result of sale,  the               export  being inextricably linked up with  the               sale  so that the bond cannot  be  dissociated               without a breach of the obligation arising  by               statute,  contract  or  mutual   understanding               between the parties arising from the nature of               the transaction, the sale is in the course  of               export." 10 SC/75-14 200 Applying  the above test also, the sale by the appellant  to STC would qualify for exemption from taxation.  It is  plain that  a breach of the appellant’s obligation  arising  under the above contract of sale would result in a situation  that

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STC  would not be able to export the chrome concentrates  to the foreign buyer. I would, therefore, accept the appeals with costs, set aside the  judgment  of  the High Court and  answer  the  question referred  to  it in favour of the assessee and  against  the revenue.  One hearing fee. In  civil appeals Nos. 2063 to 2082 of 1974 which  has  been filed  by Nandaram Huntaram, the appellants were lessees  of mines.  They entered into a contract with STC for the  sales of iron ore.  STC in its turn entered into export  contracts with  foreign buyers.  The appellants were assessed  to  tax under the Central Sales Tax and as their declaration was not produced  within  the  requisite time,  the  full  rate  was applied.   The Sales Tax Tribunal negatived the  appellant’s contention  that the sales were exempt from payment  of  tax for being D in the course of export.  The declaration  filed by the appellants was accepted and it was directed that  the assessments be made at the concessional rate.  The  Tribunal in holding the appellants to be liable to pay Central  Sales Tax found that the appellants had no direct connection  with the  export and that the sale by the appellants to  STC  was independent of the export.  It was further observed that the contracts  with STC had occasioned inter-State  movement  of the  goods  and  E as such the turnover  was  liable  to  be assessed  under the, Central Sales Tax Act.  An  application was thereafter made by the appellants to refer the following questions for decision to the High Court :               1.    Whether  in the facts and  circumstances               of the case the Tribunal was right in  holding               that  sale of iron   ore was not in course  of               export ?               2.    Whether  in the facts and  circumstances               of   the  case  the  contracts   between   the               petitioner  and State Trading  Corporation  of               India  and State Trading Corporation of  India               and foreign buyers are all inter-connected ?               3.    Whether  in the facts and  circumstances               of the case the sale of iron ore is liable  to               be taxed under Central Sales Tax Act at all ?               4.    Whether  in the facts and  circumstances               of  the case there was material  available  on               record for assessing the petitioner under  the               provisions of Central Sales Tax Act ?               5.    Whether  the sale by the petitioner  had               occasioned  movement  of goods  in  course  of               export and is protected by article 286 of  the               Constitution of India ?" The   Tribunal   dismissed  the  above   application.    The appellants  then  filed applications before the  High  Court that the Tribunal be called upon to file a statement of  the case in respect of the above mentioned                             201 questions.  The High Court dismissed those applications  and in  doing  so relied upon the judgment in the  case  of  Md. Serajuddin v. State of Orissa which is the subject-matter of the other 10 appeals, namely, civil appeals Nos. 697 to  706 of  1973.   The above mentioned 20 appeals have  been  filed against  the  order  of  the  High  Court  dismissing  those applications. Mr.  Bhandare on behalf of the State has urged in  these  20 appeals  that  the  facts  of  these  cases  are  materially different from those in the cases of Md.  Serajuddin and  as such  even  if  we accept the appeals in the  cases  of  Md. Serajuddin,  we should not interfere with the order  of  the High  Court  in  these  20 appeals.  So  far  as  the  above

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submission  is  concerned,  I  may observe  that  I  do  not express any opinion on the point as to whether the facts  of these   cases  are  similar  to  those  in  cases   of   Md. Serajuddin.   This is a matter which would have to  be  gone into after a reference and statement of case is submitted to the  High Court.  For our purpose it is sufficient  to  note that the High Court in dismissing the applications filed  by the  appellants  placed reliance upon its  decision  in  the cases  of Md.  Serajuddin.  As the judgment in the cases  of Md.  Serajuddin is being set aside, the ground for  refusing to  call for a reference no longer holds good. I  therefore, accept the 20 appeals filed by Nandaram Huntaram, set  aside the  judgment of the High Court and direct the  Tribunal  to file  a  statement  of  the case  and  refer  the  questions reproduced above to the High Court.  The appellants shall be entitled  to the costs in this Court in these appeals  also. One hearing fee. P.H.P.                        Appeals dismissed. 202