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PETITIONER: MURARILAL SARAWAGI ETC.

       Vs.

RESPONDENT: THE STATE OF ANDHRA PRADESH

DATE OF JUDGMENT15/12/1976

BENCH: RAY, A.N. (CJ) BENCH: RAY, A.N. (CJ) BEG, M. HAMEEDULLAH SINGH, JASWANT

CITATION:  1977 AIR  247            1977 SCR  (2) 441  1977 SCC  (1) 639

ACT:               Andhra  Pradesh  General Sales Tax Act,  1957--Item  1,         Second  Schedule-State  Corporation entering  into  contract         with local dealers on f.o.b. basis and exporting to  foreign         countries -- If sale in the course of export--Last  purchas-         er-Who is.

HEADNOTE:               Under  item  1  in the Second Schedule  to  the  Andhra         Pradesh General Sales Tax Act 1957, manganese ore was liable         to be taxed at the point of purchase by the last dealer  who         bought in the State.             The  appellants  sell  manganese ore to  the  Mines  and         Minerals Trading Corporation which exports the ore to buyers         in foreign countries.  Their contention before the Sales Tax         authorities  that  the sales of the ore to  the  MMTC   were         complete within the State of Andhra Pradesh and that it  was         the  MMTC which was the last purchaser liable to  pay  sales         tax  was rejected.  On appeal the High Court held  that  the         appellants’ contracts with the MMTC were integrally connect-         ed  with  the  contract entered into by the  MMTC  with  the         foreign  buyer  and, as such, the appellants were  the  last         purchasers liable to pay the tax.             The  respondent State contended before this  Court  that         since the  property in the goods passed from the  appellants         to the MMTC on board the ship in view of the f.o.b.  charac-         ter of the contract, it was the appellants who, as the  last         purchasers, were liable to pay the tax and not the MMTC,         Allowing the appeals,             HELD: The law is that it has to be found out whether the         contracts  between  the merchants and  the  Corporation  are         integrated  contracts in the course of export  or  different         contracts.  If they are different, the last purchaser within         the State is liable to pay the sales tax.  [446G]             (i) The tests for finding out the sale in the course  of         export  are  that there must be a single sale  which  itself         causes  the export or is in the progress or process  of  ex-         port.  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.

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       [443E-F]                (ii) State Corporations are often the only   authori-         ties  allowed  to  export goods out of the  country.   These         corporations  enter into contracts with foreign  buyers  for         export  and the Corporations in turn give directions to  the         merchants to place the goods on board a ship.  These  direc-         tions  are  not in the course of export because  the  export         sale  is  an independent one between  the  Corporations  and         their foreign buyers. [444D-E]             (iii) In f.o.b. contracts the sellers’ duty is to  place         the  goods free on board a ship named by the buyer  but  the         mere  mention  of f.o.b.  price  or  f.o.b.  delivery  in  a         contract between the merchants and the trading  corporations         which  export the goods under a separate contract  with  the         foreign buyers to the latter will not make the two contracts         either integrated or the contract between the merchants  and         the  Corporation  an f o.b. contract.  There cannot  be  two         last  purchasers  in the sale of the same goods  within  the         same State.  There cannot be two exporters in respect of the         same goods.  [444G & 445C]         442             (iv)  In  string  contracts the  contracts  between  the         Corporation  and the foreign buyers are different and it  is         the Corporation which enters into independent contracts with         foreign  buyers  on f.o.b. basis.  Under the  terms  of  the         contract,  the  merchants are required to  bring  the  goods         f.o.b. to the ship named by the Corporation.  [444C]             Mohd.  Serajuddin etc. v. State of Orissa  [1975]  Supp.         S.C.R.   169,  Coffee Board, Bangalore v.  Joint  Commercial         Tax  Officer,  Madras [1970] 3 S.C.R. 147  and  M/s.  Binani         Bros.  (P)  Ltd. v. Union of India & Ors. [1974]   1  S.C.C.         459, followed.             National  Tractors Hubli v. Commissioner  of  Commercial         Taxes  Bangalore [1971] 3 S.C.C. 143, no longer good law.

JUDGMENT:             CIVIL  APPELLATE JURISDICTION: Civil Appeals Nos.  1221-         1226 of 1974.             (Appeals  by. Special Leave from the Judgment and  Order         dated  26-2-1974  of the Andhra Pradesh High  Court  in  Tax         Revision Cases Nos. 5--10 of 1973).              "             4. K. Sen, S.T. Desai, B.M. Bagaria and D.P.  Mukherjee,         for the appellants.         P.P. Rao and T.V.S.N. Chari for the respondent.         The Judgment of the Court was delivered by             RAY,  C.J.  These six appeals are by special leave  from         the  judgment dated 26 February, 1974 of the Andhra  Pradesh         High Court.             The  principal question in these appeals is whether  the         appellants  are the last purchasers of manganese ore  within         the  State  of  Andhra Pradesh.   The  appellants  contended         before the Sales Tax authorities that their sales of  manga-         nese  ore to the Mines and Minerals Trading  Corporation  in         short called the M.M.T.C. were complete within  the State of         Andhra  Pradesh.   The appellants  therefore contended  that         they  were not the last purchasers but the M.M.T.C. was  the         last purchaser within the State, and therefore, the M.M.T.C.         was liable to pay the tax.             The  High Court came to the conclusion that  the  appel-         lants were the last purchasers in the State.  The High Court         held  that  the  contract between  the  appellants  and  the         M.M.T.C.  indicated  that  the appellants’ contract of  sale         occasioned  the export and that the  contract of the  appel-

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       lants with the M.M.T.C. was  integrally  connected with  the         contract  entered into by the M.M.T.C. with  their   foreign         buyer.  In short, the High Court held that there  existed  a         bond  between  the  contracts of sale entered  into  by  the         appellants  with the M.M.T.C. and the actual exportation  of         the  goods.  The High Court held that these  contracts  were         intrinsically  linked and connected and the  sales  effected         were  held to be sales in the course  of  export  of  manga-         nese ore out of the territory of India.         443             The  Constitution  Bench  of this Court  in  the  recent         decision   in  Mohd. Serajuddin etc. v. State  of  Orissa(1)         held  that  manganese merchants who  bought  manganese  from         mines and  thereafter  sold  the goods to the State  Trading         Corporation  for short the S.T.C. could not be said  on  the         terms  and  conditions of the contracts in that case  to  be         exporters  of  the  goods.  The S.T.C.  contracts  with  the         manganese  merchants and the S.T.C. contracts with the  For-         eign   Buyers  were held not to be integrated activities  in         the  course  of  export.  The crucial words in section 5  of         the  Central Sales Tax Act 1956 are that a sale or  purchase         of goods shall be deemed to take place 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.  This Court found that the  contracts         between  the manganese merchants and the S.T.C. on  the  one         hand and the contracts between the S.T.C. and their  foreign         buyers  on the other were two separate and independent  con-         tracts  of  sale.  The S.T.C. entered into  direct  contract         with their foreign buyers.  The S.T.C. alone agreed to  sell         the  goods  to  their foreign buyers.  The  S.T.C.  was  the         exporter of goods.  There was no privity of contract between         the  manganese  merchants  and  the foreign buyers from  the         S.T.C.   The privity of contract was between the S.T.C.  and         the foreign buyers.  The immediate  cause  of  the  movement         of  goods  and export was the contract between  the  foreign         buyers  who  were the importers and the S.T.C. who  was  the         exporter and shipper of the goods.             In Serajuddin’s case (supra) this Court referred to  the         rulings  in Coffee Board Bangalore v. Joint  Commercial  Tax         Officer Madras (a) and M/s Binani Bros. (P) Ltd. v. Union of         India & Ors.(3) as laying down the correct tests to find out         the  sale in the course of export. 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 export-         er to the importer.             Counsel  for  the State submitted that  there  were  six         contracts  and it has been the case of the  appellants  that         the  contracts were different, and, therefore, there  should         be  examination of five other  contracts. It may  be  stated         here  that  counsel for the State did not dispute  that  the         decision in Serajuddin’s case (supra) applied to one of  the         six contracts but he disputed the application of the  ruling         in  Serajuddin’s  case to the other  five  contracts.    The         reasons given by counsel for the State are these.  Only  one         contract  was referred to in the  High Court.  The  case  of         the appellants has all along been that the  Sales Tax Appel-         late authorities considered only one contract. The     High         Court  also  considered only one contract.  In  the  special         leave  petition the appellants assailed the assumption  made         by the High Court to the effect that all contracts   between

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       the  appellants  and  the M.M.T.C. were similar.           (1) [1975] Supp. S.C.R. 169.     (2) [1970] 3 S.C.R.  147.         (3) [1974] 1 S.C.C. 459.         444             Counsel  for the State put in the forefront the  conten-         tion  that  the M.M.T.C. could not be the last purchaser  of         goods within the State of Andhra Pradesh because property in         the  goods passed  from  the appellants to the  M.M.T.C.  on         board  the  ship.  In aid of that  contention  reliance  was         placed  on  F.O.B. character of the  contract   between  the         appellant and the M.M.T.C.  The position is identical in all         the six contracts.             This Court in Serajuddin’s case (supra) pointed out that         mention of F.O.B. price in the contracts between the  manga-         nese merchants and the S.T.C. did not render these contracts         F.O.B.  contracts  with the foreign buyers from  the  S.T.C.         The reason is simple.  The contracts between the S.T.C.  and         the  foreign buyers are  different  contracts and it is  the         S.T.C. which entered into independent  contracts with  their         foreign buyers on F.O.B. basis.  Under the contracts between         the  manganese merchants and the S.T.C. the merchants   were         required to bring the goods F.O.B. to the ship named by  the         S.T.C.             It  has  to be appreciated that quite  often   merchants         dealing in goods which are exported out of our country enter         into  what  is called string contracts for purchase  of  the         goods from the factory  or  the mines for sale to  exporters         for  sale to foreign buyers.  The Trading  Corporations  are         often  the  only authorities allowed to export  out  of  our         country.   These Corporations enter into  direct   contracts         with their foreign buyers for export.  The directions  given         by  the Corporations to the merchants to place the goods  on         board the ship are pursuant to the contracts of sale between         the merchants and the Corporation.  These directions are not         in  the  course of export, because  the export  sale  is  an         independent  one between the Corporation and  their  foreign         buyers.   The taking of the goods from the merchants’  place         to the ship is completely separate from the transit pursuant         to  the export sale (See Serajuddin’s case at pp. 184-185).             In string contracts or chain contracts delivery is  made         by   the original seller and eo instanti it is delivered  in         implement  under  each separate contract in the  chain.   In         chain  or  string contracts starting between  the  mills  or         mines  or factories and their  immediate  buyer  and  ending         with the ultimate buyer through  several  intermediaries not         only does the mill give and its immediate buyer take  actual         delivery  but  eo instanti each middleman  gives  and  takes         actual  delivery This process of delivery of possession goes         all along the chain at the same moment when delivery is made         to   the   steamer.   See  Duni Chand  Rataria  v.  Bhuwalka         Brothers Ltd.(1).             In  F.O.B. contracts the seller’s duty is to  place  the         goods "free on board" a ship to be named by the buyer.  When         the  seller   delivers  the goods for loading  on  board  he         normally obtains a mate’s receipt which he transmits to  the         buyer  and the buyer exchanges this for the proper  bill  of         lading.  In this sort of F.O.B. contract the almost  univer-         sal rule is that property and risk both pass on shipment  as         soon as the goods are over the ship’s rail and if it  should         be material, the property and risk in each part of the cargo         will pass as it crosses the         (1) [1955] 1 S.C.R. 1071.         445         ship’s  rail.  The loading of the goods is an  unconditional         appropriation  which  passes  the property.    This  is  not

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       because  of any peculiarity of F.O.B. contracts but  because         in  this type of contract the seller’s duty is  to   deliver         the  goods F.O.B.  Once  they are on  board the  seller  has         delivered  them  to the buyer and it is  natural  that  they         should thereafter be at the buyer’s risk.               Now  a  days  a party  which has  contracted  to  sell         goods   to   a  foreign  buyer may itself   buy  the   goods         F.O.B.   Indian port from Indian seller in order to  fulfill         F.O.B. contract with a foreign buyer.              This Court in Serajuddin’s Case ’(supra) has laid  down         that  the mere mention of F.O.B. price or F.O.B. delivery in         contract  between a merchant and the S.T.C.  which  .exports         the  goods under a separate contract with the foreign  buyer         to  the latter will not make the two contracts either  inte-         grated  or the contract between the merchant and the  S.T.C.         an F.O.B. contract.  There cannot be two last purchasers in         the  sale of same goods within the same  State.   Similarly,         there cannot be two exporters in respect of the same  goods.         After the decision of the Constitution Bench in Serajuddin’s         case  (supra)  the decision in National  Tractors  Hubli  v.         Commissioner  of Commercial Taxes Bangalore(1) is no  longer         good law.            In  the National Tractors case (supra) which was a  three         Judge Bench decision reliance was placed on the decision  in         B.K.  Wadeyar v. M/s. Daulatram Rameshwarlal(2).   In  Wade-         yar’s case (supra) this Court said that the normal  presump-         tion  attaching to F.O.B. contracts is that property in  the         goods  passes  only  when they are put on  board  the  ship.         Wadeyar’s case (supra) was before the Central Safes Tax  Act         1956. Further the Bill of Lading, the export licence and the         export  clause all showed that the export did  not  commence         till the slip left the port.                In  the  National Tractors case (supra) it  was  said         that the purchase by the State Trading Corporation from  the         merchant  was in the course of export by the S.T.C.  to  the         foreign  buyer and, therefore, the purchase by the  merchant         from the mine-owner was the last purchase in the State.  The         basis  of the decision is that these were integrated  F.O.B.         contracts in the course of export.            The  decision in National Tractors case (supra)  made  no         reference to the decision of this Court in Coffee Board case         (supra).  The correct law is laid down by this Court in  the         Coffee Board case and Serajuddin’s case (supra).  The law is         this.  It has to be found out whether the contracts  between         the  merchants and the Corporation are integrated  contracts         in the course of export or they are different.  If they are         different  contracts, as they are in the present  case,  the         last purchaser within the State is the M.M.T.C.            For the foregoing reasons the appeals are accepted.   The         judgment  of the High Court is set aside.  The parties  will         pa   their costs.         P.B.R.         Appeals allowed.         (1) [1971] 3 S.C.R. 143.         (2) [1961] 1 S.C.R. 924,         446