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PETITIONER: THE STATE OF KERALA AND OTHERS

       Vs.

RESPONDENT: THE COCHIN COAL COMPANY LTD.

DATE OF JUDGMENT: 31/10/1960

BENCH: AYYANGAR, N. RAJAGOPALA BENCH: AYYANGAR, N. RAJAGOPALA DAS, S.K. HIDAYATULLAH, M. GUPTA, K.C. DAS SHAH, J.C.

CITATION:  1961 AIR  408            1961 SCR  (2) 219  CITATOR INFO :  RF         1966 SC 376  (6)  E          1968 SC 389  (3,8,9)  RF         1986 SC1760  (22)

ACT: Sales  Tax--Explanation Sales--Sale and delivery of coal  to Steamship--Whether in the course of export--Constitution  of India,  Art.  286--United States of  Travancore  and  Cochin General  Sales  Tax  Act,  1125,  s.  6--Notification  dated February 5, 1954.

HEADNOTE: The respondent stocked ’bunker coal’ at Candle Island in the State of Madras.  They sold the coal to steamers calling  at the  port  of Cochin in the State of  Travancore-Cochin  and delivered  it there.  The respondent was assessed  to  sales tax  on such sales for the year 1951-52 and 1952-53.  ,  The respondent  contended that no sales tax could be levied  on these  sales since they were either sales’ in the course  of export’  or in the course of inter-State trade  exempt  from sales  tax under sub-cl. (1) (b) or cl. (2) of Art.  286  of the  Constitution  and  in the alternative  that  they  were exempt from tax under a notification dated February 5, 1954, issued  by  the appellant State under  which  sales  failing within  the  Explanation to Art. 286(1)(a) made  during  the period 4-1-1951 to 31-3-1953 were exempted from liability to pay tax. Held  that  the  sales  were  exempt  from  tax  under   the Government  Notification.   The coal was  delivered  to  the actual consumer, i. e., the steamships in  Travancore-Cochin and  they  were  at liberty to  consume  it  :wherever  they desired,  either  within  the State or  outside  the  choice depending  on its convenience and necessity.   The  delivery was  for  consumption within the State and  the  sales  fell within the Explanation to Aft. 286(1)(a). Though  the  sales were in the course of  inter-State  trade which  were covered by the ban on taxation imposed  by  Art. 286(2)  the levy was validated by the Sales  Tax  Validation Act, 1956.

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M.   P.  V. Sundararamier & Co. v. The State of Andhra  Pra- desh, [1958] S.C.R. 1422, relied on. The  sales were not made ’in the course of export  and  were not covered by the ban imposed by Art. 286(1)(b).  For  Art. 286(1)(b)  to  apply it was not sufficient  that  the  goods merely  moved  out  of the territory of India,  but  it  was further  necessary that the goods should be intended  to  be transported  to a destination beyond India.  The concept  of ’export’ in Art. 286 postulated the existence of two termini between which the goods were intended to be transported. 220 Burmah Shell Oil Storage & Distributing Co. of India Ltd. v. The  Commercial  Tax Officer, C.A. 751 of 957 & C.A.  10  of 1958 (Unreported) followed.

JUDGMENT: CIVIL APPELLATE JURISDICTION: Civil Appeal No. 287 of 1958. Appeal from the Judgment and Order dated the 10th September, 1956,  of the former Travancore-Cochin in Original  Petition No. 191 of 1955. Sardar Bahadur, for the Appellants. K.   P. Abraham, P. George, and M.R. Krishna Pillai, for the Respondent. 1960.  October 31.  The Judgment of the Court was  delivered by AYYANGAR J.-This is an appeal from the judgment of the  High Court  of  Travancore-Cochin  on a  certificate  of  fitness granted  by  it under Art. 133(1) of  the  Constitution  and raises for consideration the liability of the respondent-The Cochin Coal Company Ltd.to sales-,tax under the United State of Travancore and Cochin General Sales Tax Act, 1125 (1950). The following are briefly the facts which it is necessary to state  in order to appreciate the points in  controversy  in the  appeal.   The Cochin Coal Company Ltd.  which  will  be referred  to  as the respondent-Company are, as  their  name indicates,  dealers  in coal.  The commodity, the  sales  of which have given rise to the dispute in this appeal is  what is known as ’ Bunker coal’.  The company have their  offices at a place called Fort Cochin which was formerly within  the State  of Madras.  They import and keep stocks of  "  bunker coal " stacked at a place called Candle Island which at  the date relevant to these proceedings was also within the State of Madras.  Part of the activities of the respondent-company consist  in the supply of " bunker coal " from their  depots in Candle Island to steamers arriving in or calling at,  the port  of Cochin (in the State of Travancore-Cochin) for  the outward  voyage  of the steamers from the  said  port.   The usual  procedure by which bunker coal was thus  supplied  by the respondent company was briefly 221 this:   Before  the  arrival of the  steamers,  the  steamer agents  would  enter  into  contracts  with  the  respondent company  for trimming coal into the bunker of  the  steamer. As  soon as a steamer arrived in Cochin port,  the  steamer- agents would inform the respondent-company and these  agents after securing the necessary papers from the customs and the port  authorities  for  the loading of  the  coal  into  the steamer, would take these papers to the respondent-company’s office  in  Fort Cochin for enabling the latter  to  perform their  part of the contract.  The  respondent-company  would thereupon  send  the goods ordered to  the  steamer  through their transport contractor.  Delivery orders would be issued to  the transport contractor on the strength of which  goods

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would  be released from their stock in Candle Island.   Coal would  then be taken to the steamer berthed in the  port  in Travancore-Cochin  State waters.  The Chief Engineer of  the steamer would inspect the coal and when the same was to  his satisfaction  as  regards quality, the coal  would  be  per- mitted  to  be trimmed into the bunkers of the  ships.   The price   of  the  coal  would  thereafter  be  paid  to   the respondent-company on bills drawn on the steamer-agent.  The above being the nature of the transactions conducted by  the respondent-company,  sales-tax was claimed on the  sales  of bunker coal by the Travancore-Cochin State.  The  assessment years  with which this appeal is concerned are  1951-52  and 1952-53,  and  the  assessment therefore  was  completed  on February  2,  1954,  by  the  sales-tax  officer,    Circle, Mattancherry.   The respondent-company’s contention that  no sales-tax could be levied on the value of the " bunker  coal "  supplied,  since the sale was either " in the  course  of export  ",  or " in the course of inter-State  trade  "  and therefore exempted from taxation by the State under  sub-cl. (1)(b)  or  (2) of Art. 286 was rejected  by  the  assessing officer  for  the  reason that the sales  in  question  fell within the Explanation to Art. 286 (1)(a) and were therefore "  inside  "  the  State  of  Travancore-Cochin,  since  the delivery  in  pursuance of the sale took  place  within  the State  and  the  goods were delivered  for  the  purpose  of consumption within 222 the State and that notwithstanding that there was an  inter- State element involved in the sale, by the goods being moved from Candle Island, the same did not affect the power of the delivery  State  to levy the tax.  The point  urged  by  the company,  that  the same sales had been assessed to  tax  in Madras State as sales actually taking place there, was  also rejected  as  irrelevant The  respondent-company  thereafter filed an appeal to the Appellate Assistant Commissioner  who allowed  the  appeal of the company holding that  the  sales were " in the course of export " within Art. 286(1)(b),  and that  even  if they were not such but were  ’,inside"  sales falling  within  the Explanation to Art.  286(1)(a)  of  the Constitution,  still a notification by the State  Government dated  February  5,  1954, exempting such  sales  from  tax, operated  for the benefit of the assessee.   Thereafter  the Deputy  Commissioner  of sales-tax who  was  the  Revisional authority  took  up  the matter suo motu,  called  upon  the assessee to show cause why the appellate order should not be set  aside and the entire turnover assessed to sales-tax  as the  sales  had taken place inside the  State  only.   After hearing  the  assessee-company the order  of  the  appellate Assistant  Commissioner was set aside and that of the  Sales Tax Officer restored.  The respondent-company then moved the High  Court of Travancore-Cochin under Arts. 226 and 227  of the Constitution to set aside the order in revision and  the learned Judges of the High Court ordered accordingly.  They, however,  granted  a certificate under Art.  133(1)  of  the Constitution  to  enable  the State Government  to  file  an appeal  to  this  Court and that is how the  matter  is  now before us. Though  the  respondent-company  appear  to  have  presented before  the High Court several lines of argument in  support of  their  contention that they were entitled  to  exemption from  sales-tax in respect of bunker coal " trimmed by  them into  steamers  in  the  waters  of  Travancore-Cochin,  the learned  Judges  rested  their decision  in  favour  of  the respondent-company  on practically a single  ground.   Their reasoning  was  briefly  as follows:  Following  the  Bengal

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Immunity case (1), the learned Judges held that, the bans (1) [1955] 2 S.C.R. 603. 223 imposed by cls. 1(a) and 2 of Art. 286 were independent  and that  the sale of the coal by the  respondent-company  which was  in the course of inter-State trade was covered  by  the ban   contained   in  Art.  286(2)  of   the,   Constitution notwithstanding that the sale might satisfy the terms of the Explanation   to  sub-cl.  1(a).   The  learned   Government Pleader,  however, had submitted that if the  exemption  was derived,  from Art. 286(2), the, same would not  assist  the assessee,  since  the validity of the tax was saved  by  the Sales-tax Law Validation Act, 1956.  The learned Judges how- ever held that the validation Act could not avail the  State because  on their construction of s. 26 of  the  Travancore- Cochin  General Sales Tax Act, 1125 (corresponding to s.  22 of the Madras Sales Tax Act, 1939) no tax had been levied or was leviable on sales in the course of inter-State trade  or commerce  and that the Validation Act having validated  only taxes  already levied could not enable the State to  levy  a tax which had not been imposed by the State’s Sales-tax Act. There  is  no  doubt that the transaction  of  sale  in  the present  case  was in the course of  inter-State  trade  and would  be  covered by the ban on taxation  imposed  by  Art. 286(2).   But  the view of the learned Judges  of  the  High Court regarding the construction of s. 26 of the Travancore- Cochin  General  Sales  Tax  Act must  now  be  held  to  be incorrect in view of the decision of this Court in M. P.  V. Sundararamier & Co. v. The State of Andhra Pradesh (1).   If therefore  the  assessee-company  could rely  only  on  Art. 286(2)  for  claiming  relief, it must be  held  to  be  not available to them since the Sales Tax Validation Act,  1956, would have validated the levy. Before  us,  however, learned Counsel  for  the  respondent- company urged two grounds to sustain the decree of the  High Court in its favour., The first was that as the coal trimmed into  the steam-ships were. meant to be carried outside  the territory of India, the sale was " in the course of export " within Art. 286 (1)(b) of the Constitution and was therefore exempt  from  the  levy of sales-tax  by  the  State.   This contention  however  has  to  be rejected  in  view  of  the decision (1) (1958) S.C.R. 1422. 224 of  this  Court in Burmah Shell Oil Storage  &  Distributing Co.,  of  India, Ltd. v. The Commercial Tax Officer  (1)  in which  it was held that in the context and setting in  which the  expression " export out of the   territory of  India  " occurs  in  Part  XIII  of  the  Constitution,  it  was  not sufficient   that  goods  were  merely  moved  out  of   the territory’  of India but that it was further necessary  that the  goods  should  be  intended  to  be  transported  to  a destination beyond India, so that they were in the course of "  import  "  into some other  locality  outside  India  and accordingly  that  aviation spirit sold to an  aircraft  for enabling  it to fly out of the country was not " exported  " out  of  the  country.  The reason was  that  there  was  no destination  at which it could be said that the  spirit  was imported  and that a mere movement of the goods out  of  the country following a sale would not render the sale one "  in the  course  of  export  " within Art.  286  (1)(b)  of  the Constitution.  In other words, the concept of export in Art. 286 postulates just as the word import, the existence of two termini  as  those between which the goods are  intended  to

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move  or between which they are intended to be  transported, and not a mere movement of goods out of the country  without any intention of their being landed in specie in some  fore- ign port. The  other point urged by learned Counsel was that,  in  any event,  the  sale  fell  within  the  Explanation  to   Art. 286(1)(a) inasmuch as the delivery of the coal was  effected in  the  State  of  Travancore-Cochin  for  the  purpose  of consumption in that State.  There is no doubt that the goods having  originally been located in Candle Island  in  Madras State were moved out of that State by reason of the contract of  sale  into the territory of Travancore-Cochin.   It  had therefore   an   interState  element  which   rendered   the Explanation   applicable.   The  delivery   was   admittedly effected  in  the  State of Travanoore-Cochin  as  a  direct result of that sale and was trimmed into the steam-ships  in the Cochin waters.  If the purpose of the delivery was (1)  C.A. 751 of 1957 & C.A. 10 of 1958 (Unreported).                             225 not  export as we have held earlier, it must follow that  in the  circumstances  of this case it was for the  purpose  of consumption  in  the  State since the delivery  was  to  the ultimate  consumer  who  was to use the goods  for  his  own purposes and not for the purpose of re-export or with a view to  other  transactions  of a commercial  character  in  the goods.   It  would be noticed that  the  ultimate  buyer-the steam-ship  company could, if it desired, consume the  goods in the sense of exhaust the goods by consumption within  the State  or it could take it outside the State and consume  it there, but that was a matter of its choice, dependent on its will  and pleasure.  This would not therefore  detract  from the  delivery to it being for consumption within the  State. Goods  might be consumed either by destruction or by way  of use  depending  on  the nature of the  goods.   Thus  edible articles  are  generally consumed in a literal  sense  while other articles like clothing or furniture etc. are  consumed by  being used, though they are not destroyed by  such  use. If  edible  articles are sold and delivered to  an  ultimate consumer within a State, it is delivered for the purpose  of consumption  within  the State,  notwithstanding,  that  the buyer  may not choose to consume the whole of  his  purchase within the State but takes part of it outside the State  and consumes  it there.  If, for instance, a vehicle is sold  to the actual user and the sale is not in the course of  export or  with a view to further commercial transactions in it  by the  purchaser  by way of resale etc., the delivery  to  the user is for the purpose of his consumption within the State. The fact that such a purchaser might in the exercise of  the enjoyment of his property-by way of use or " consumption  "- drive the vehicle to other States does not detract from  the original  delivery to him falling within the Explanation  to Art.  286(1)(a).  In the present case, the coal having  been delivered  into  the ship for being consumed by it,  it  was open  to the master of the vessel to use the coal while  the ship  was  in the waters of Travancore-Cochin, or if  he  so chose take it outside those limits.  The position might be 29 226 different  if the buyer were obliged by contract or  by  law not  to use or consume the goods sold within the   State  of delivery, i.e., where he has no choice to consume it  there. In the case on hand, part of the coal   delivered could  and would certainly have been used by the ship during the period of her stay in the harbour for loading and if such stay were prolonged  owing to unforeseen causes even the  entire  coal

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might have been exhausted and of course it would have to  be used  till  the  ship left the limits of the  port  and  the limits  of State territory.  The crucial fact therefore  was that  the coal was delivered to the actual consumer who  was at  liberty  to consume it wherever  he  desired-the  choice depending on his convenience and necessity. In  the  circumstances, therefore, learned Counsel  for  the respondent was right in his submission that the sale of  the "bunker  coal"  by  the  assessee-company  fell  within  the Explanation  to Art. 286(1)(a).  If there were nothing  more and  the  liability of the assessee had to  be  judged  with reference to the charge imposed by the Sales-tax Act of  the State,  read  in  the light of  the  Constitution,  the  tax liability of the respondent-company would not have been open to doubt or dispute.  But the submission of learned  Counsel was that the State Government had power to exempt sales of any particular designated type from tax liability under s. 6 of  the  Sales-Tax  Act, and that the Government  had  by  a notification  dated February 5, 1954, and published  in  the official Gazette, exempted sales such as by the  respondent- company  in  the  present case from the  levy  of  sales-tax during the assessment years now in question.  The  exemption under this notification was no doubt not referred to by  the learned  Judges  of the High Court but had been one  of  the grounds  on which the sales-tax appellate authority had  set aside  the tax imposition by the Sales-tax Officer  and  the point  had been specifically urged in the petition filed  in the  High Court under Art. 226, and the  respondent  cannot, therefore,  be denied the benefit of the notification if  it applied. Section 6 of the Travancore-Cochin Sales-tax Act enacts:                             227 "The Government may, by notification in the Gazette,   make an exemption.................. in respect of any tax   payable under this Act :- (i)  on  the  sale of any specified class of  goods  at  all points or at any specified point or points in the series  of sales by successive dealers ; or (ii)  of any specified class of persons " in regard  to  the whole or any part of their turnover".  It is not necessary  to set out the rest of the section. In the  Travancore-Cochin Gazette dated February 16, 1954,  the following notification dated February 5, 1954, appeared: " According to the interpretation given by the Supreme Court to Art. 286(1) of the Constitution in their judgment in  the State  of  Bombay  v.  United  Motors  India  Ltd.   certain categories  of  inter-State  transactions  come  within  the taxing  powers of the State Government.  While the  judgment enables  the Government of Travancore-Cochin to levy  sales- tax  on certain categories of non-resident  dealers  selling goods  for delivery and consumption in  Travancore.   Cochin State  from the 1st April 1951, the Government  have,  after due  consideration,  decided  to  levy  sales-tax  on   such transactions   only  from  the  1st  April   1953-the   date immediately  following  that  on  which  the  Supreme  Court delivered its judgment and to forego the levy prior to  that date ". Then followed provisions detailing the interim  arrangements for  submission of returns, of declarations to be filed  and the  manner  in which the tax should be assessed  and  paid. Though  the  learned counsel for the  appellant-State  urged that the notification could not have the statutory effect of granting exemption, we are clearly of the opinion that  this was  and must be deemed to be one issued in exercise of  the power  conferred  on the State Government by s.  6(1)  whose

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relevant  terms we have already extracted. Besides, this  is rather  a  curious submission to make in view  of  what  had transpired  earlier.  The appellate  Assistant  Commissioner who  set  aside  the assessment  of  the  respondent-company stated in his order " Even if it is considered that the sale is for 228 consumption  in this State, the company need not pay tax  on the turnover since Government have exempted from payment  of tax  on the sales which took place before April 1,  1953  ". When  this  appellate  order was set  aside  by  the  Deputy Commissioner  acting  suo  motu in  revision,  there  is  no reference  made to the notification in the order and it  was not stated that it had no statutory effect.  In its petition to  the  High Court under Art. 226,  the  respondent-company claimed  the  benefit  of  the  exemption  granted  by   the notification  dated February 5, 1954, and published  in  the Gazette of February 16, 1954, relating to the assessment for the period April 1, 1951 to April 1, 1953 and it added  that the  assessment  in  question  came  within  the   exemption contained in the Gazette notification.  In answer to this  a counter-affidavit  was  filed by the sales-tax  officer  who said  : " The notification referred to in  the  petitioner’s affidavit  has  no application to the case as the  sales  in question did not come within their orbit ". In other  words, the  objection  was  not that the  notification  was  not  a statutory exercise of the power under s. 6(1) and  effective to  grant an exemption to the cases covered by it, but  that the transactions of the respondent-company were not  covered by  the notification.  The extract we have quoted  from  the notification  shows that it is specially designed to  afford relief  to cases of non-resident dealers engaged  in  inter- State  transactions  which  were  held  to  be   intra-State transactions by reason of the application of the Explanation to  Art.  286(1)(a) to such sales by the  decision  of  this Court  in  the  United  Motors  Case.   As  the   respondent company’s  transactions in question clearly fall within  the notification  by  reason  of their nature  as  well  as  the assessment years concerned, the respondent-company would  be entitled  to the benefit of the tax exemption  conferred  by the notification. The  result is that the appeal fails and is  dismissed  with costs. Appeal dismissed.                             229